ESG stands for Environmental, Social and Governance. It refers to a set of standards used to measure a company’s impact on society and the environment. It also considers how transparent and accountable a business is in these areas.

Here’s a breakdown of what ESG stands for.

Environmental  

The environmental element of ESG considers the overall impact a company has on the environment and how it seeks to minimise this. It also addresses the potential risks and opportunities the business faces due to issues like climate change and sustainability.  

The ESG criteria for environmental factors can include: 

• Energy consumption and efficiency  
• Carbon emissions 
• Waste management 
• Air and water pollution 
• Renewable energy 

Social 

Social factors are based on a company’s social impact. For example, they focus on how it treats different groups of people. This could include customers, employees, suppliers and members of the community.  

This area prioritises fairness and equality, looking at a business’ workplace culture and how its operations affect wider society. 

The social element of ESG tends to look at factors like: 

• Fair pay for employees 
• Diversity, equity and inclusion  
• Workplace health and safety, including wellbeing 
• Policies on data protection and privacy 
• Customer satisfaction  
• Product safety 
• Investing in local community projects 
• Policies on human and labour rights, modern slavery and freedom of association 

Governance 

Governance refers to a business’ processes of decision-making and reporting, as well as its operational logistics. It examines a company’s ethical behaviour and assesses how transparent it is with stakeholders about its activities.  

It also looks at businesses’ efforts to maintain compliance with regulations and industry best practices. 

Governance addresses factors like: 

• Leadership and management  
• Financial transparency 
• Board accountability and compliance 
• Risk management 
• Methods of accounting 
• Tax payments 
• Ethics and anti-corruption measures 

ESG is important for businesses as it contributes to factors that are essential for long-term success. 

Customer demand

Some 76% of consumers would stop buying from companies if they neglected environmental, employee, or community wellbeing, according to research. This shows the impact ESG has on customer behaviour, suggesting companies that have effective ESG strategies could boost loyalty and demand. 

Learn more about understanding your customers.

Regulatory pressures

ESG strategies may help companies remain compliant with regulations related to the environment, society and governance. This can prevent businesses from facing fines, help with risk management, and improve operational efficiency. 

For example, environmental strategies could help to boost energy efficiency and cut costs – research shows that businesses with higher ESG scores often have lower capital costs.

Competitive advantages

Remaining compliant with regulations and showing your commitment to having a positive impact on society and the environment could boost your reputation with customers and potential investors – giving you a competitive advantage. It’s reported that 88% of consumers show increased loyalty to companies that advocate for social or environmental issues.

ESG and sustainability are closely related topics. However, ESG focuses on measuring the extent to which companies meet criteria for being pro-social, environmentally friendly, and in line with corporate governance expectations. All these features can contribute to establishing a sustainable business. 

Defining ESG goals is a key part of establishing a successful ESG strategy. Here are some of the steps you’ll need to take.

Assess current practices

Firstly, consider conducting an ESG audit to examine your existing processes and identify areas for improvement. Are there any gaps or failures in your internal operations and policies? This could be anything from diversity to energy performance.

Set measurable goals

Goal setting is key. All the ESG goals you set should be SMART – specific, measurable, achievable, realistic and time-bound. This way, you can monitor progress and see if any further changes need to be made. Your goals should align with the business’s long-term objectives. Learn more about how to set measurable goals here.

Engage stakeholders

Input from stakeholders is key to creating and maintaining an effective ESG strategy. You could get feedback from employees to see how existing policies and processes are working for them – noting any concerns that need to be addressed. You can also seek feedback from customers through surveys, reviews and focus groups.

Measuring and reporting your ESG progress is essential to monitoring your strategy’s performance and building trust with key stakeholders. Here are a few ways to do this.

Tools for measuring ESG

There are a few tools and frameworks you can use to help structure and measure progress against ESG goals. Some of the most common include the:

• GRI: Global Reporting Initiative
• SASB: Sustainability Accounting Standards Board
• TCFD: Task Force on Climate-related Financial Disclosures

These frameworks include standards, recommendations and guidelines for different aspects of ESG.

Importance of transparency

Once you’ve gathered all your data for your ESG report, it’s essential that you stay transparent with your reporting. 

Taking accountability will help you better identify, assess, and manage ESG risks. Plus, it can enable you to build trust with customers and investors. 

Benefits of tracking progress

By consistently tracking the progress of your ESG strategy, you can ensure it’s fit for purpose and make changes accordingly in line with your goals. 

You can see what processes are working well and perhaps implement similar procedures elsewhere, and compare your results to competitors – ensuring you’re ahead of the game. This could lead to a number of benefits, from enhanced credentials to customer loyalty and cost savings.

Our experts can support you in designing, structuring and executing a successful ESG strategy.

Learn more about how we can support your company’s ESG journey.