The benefits, pitfalls and importance of ESG

There are many different elements to the ESG acronym, which can at first glance seem overwhelming. By breaking these down, companies can make a vital start on implementing a suitable framework for ESG and move towards sustainable growth


Seaspiracy, the hard-hitting fishing industry documentary, was top of the Netflix most watched list recently. It received huge amounts of attention, incredible reviews across the world, and sparked many interesting conversations. Why? It shone an important spotlight on sustainable fishing practices, which many were not aware of. It is another example, in a long line of documentaries and media exposés, which focuses on environmental, social and governance (ESG) concerns.

The consumer appetite to be more sustainable and ethical in how they live, shop and do business is growing. In fact, a 2020 global survey by Accenture found 60 percent of consumers have reportedly been making more environmentally friendly, sustainable, or ethical purchases since the start of the pandemic, with nine out of 10 saying they were likely to continue doing so. With this consumer appetite comes pressure for businesses to prove they take commitments to sustainability seriously. So much so, that ESG has become a boardroom topic, with many realising that if they don’t ‘prove it’ when it comes to ESG policies, it could seriously impact profits and investor relations.

However, a recent study by NAVEX Global revealed that while 82 percent of companies have ESG goals, less than half are performing well against individual ESG metrics. More needs to be done if businesses want to keep pace with the demand for ESG. With a multitude of frameworks available, varying guidelines, and uncertainty on how the E, the S and the G come together, it can seem like a daunting task to get right. But, understanding what each of these means is an essential starting point. The ESG acronym refers to a trio of business measures, typically used by environmentally and socially conscious investors, to identify and vet investments. Each measure adds its own value.

Environmental; benchmarks and addresses the way an organisation responds to environmental issues, such as climate change and greenhouse gas (GHG) emissions, energy efficiency, renewable energy, green products and infrastructure, carbon footprint, and water use.

Social; outlines how companies should respond to complex and evolving issues like data privacy, pay equity, health and safety, diversity and inclusion, social justice positions and employee treatment.

Governance; deals with issues such as executive compensation, diversity and independence of the board of directors and management team, proxy access, whether the chairman and CEO roles are separate and transparency in communication with shareholders.


Bringing the policy elements together
With an understanding of each element making up an ESG policy, success comes with the identification of relevant regulations for your business and implementing frameworks that can help you achieve compliance against them. To report ESG risks accurately, organisations need a framework or set of standards to assess the business operations against.

There are several popular ESG frameworks that companies can use to do this, but as there will be several different regulations relevant to your business, it’s important to find a framework that fits.

Key standards like the sustainability accounting standards board (SASB), global reporting initiative (GRI), carbon disclosure project (CDP) and taskforce on climate-related financial disclosure (TCFD) are recommended to help launch ESG reporting activities. These standard bodies have years of experience collaborating with industry working groups to develop increasingly important metrics. This is crucial for investors and other stakeholders to use, in order to understand how a business is performing. Leadership teams must build ESG programmes, create awareness with an ESG rating, and hit and report on metrics that matter to these forward-thinking investors if they wish to prosper.


The perks and pitfalls of ESG policies
The issue is that each of these ESG frameworks has different areas of focus. This can make it quite complicated when measuring against them, to find one that aligns well with your business goals. But, this is exactly where ESG software can help. Implementing ESG software like NAVEX ESG helps to manage internal ESG initiatives, as well as external activities and reporting.

Whether your goal is values-based business development or just making the world a better place, ESG software can ensure companies aggregate investor-ready data, help you build a best-practice programme, and address metrics that decision-makers, consumers and your employees care about, putting you on a path for sustainable future growth. Those who align ESG goals with wider business goals will have more long-term success as the appropriate professionals collect better information. ESG metrics are only going to increase in importance.

The fallout of the Seaspiracy documentary has seen online discussions calling for the banning of industrial fishing practices and viewers pledging never to eat fish again. While this particular topic may not directly affect your business, ESG policies and the increasing importance they play, most certainly will.

From a regulatory perspective alone, responding to current state and global regulations – as well as anticipated regulations – requires extensive data collection, a deep understanding of the reporting and frameworks and perhaps most essentially, keeping ESG issues at the top of business agendas. It is important businesses put ESG policies into practice now, in order to safeguard themselves in the future.