ESG – The New Normal Paving The Way For A Sustainable Future

Climate change knows no borders. It will not stop before the Pacific Islands and the whole of the international community here has to shoulder to bring about sustainable development” – Angela Markel, Former Chancellor of Germany.

These apt words from one of the most powerful women worldwide bring out the universal and inescapable reality. Therefore, the need of the hour for organizations across the world is making environmental, social, and governances (ESG) an integral part of their business.  

Organizations all over the world are gradually developing and embedding ESG strategies to build sustainable businesses. Global business operations have been undergoing significant changes amidst climate change, deteriorating ecosystems, finite resource availability, and evolving stakeholder expectations. The outbreak of COVID-19 and related business disruptions have heightened and reinforced the need for quick action, making ESG a crucial agenda for organizations focusing on long-term sustainable growth.

What Is ESG?

Gartner defines ESG as:

Environmental, social and governance (ESG) refers to a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts.”

ESG revolution is the new-age movement businesses must embrace to achieve better survivability, performance, as well as the overall good of the planet Earth. But, it will probably take a while before organizations fully weave ESG into their day-to-day operational processes.

The Growth Of ESG Investing

According to the latest CDP Global Supply Chain Report, businesses are expected to suffer revenue losses of $1.26 trillion within the next five years due to deforestation, climate change, and water insecurity. This number has caused many businesses to suit up and take action. Consequently, investors and banks are increasingly using ESG disclosures as a way of measuring investing risks and opportunities.

Here’s an insight into sustainable investing in practice.

  • It has graduated from being a specialist discipline to becoming a core driver of the financial markets.
  • Investors must not adopt a one-size-fits-all approach to ESG. They must account for the differences across countries, regions, sectors, and industries since they support their portfolio companies on a transitional journey. 
  • Sustainability should not be restricted to thematic investing only. It should be fully integrated across the portfolio that requires constant education, engagement, and a shift in mindset across the whole organization. 
  • Sustainable investing is about transitioning from brown to green, creating value for companies and their stakeholders, which ultimately drive better ESG outcomes.
  • There has been an explosion of ESG solutions with varying levels of sustainability integration. Investors should do their due diligence to pick products that deliver risk-adjusted returns and optimal results.  

Environmental Sustainability: What Is It?

Environmental sustainability is the duty to protect global ecosystems and conserve natural resources to support the planet’s health and well-being, both now and in the future. In simple words, environmental sustainability denotes operating within the limits of the Earth.

Environmental sustainability includes reducing carbon emissions or going carbon negative to tackle climate change. This specifically includes minimizing resource use, investments in renewable energy, doing more with less, or water conservations, waste reduction, pollution prevention, just to name a few.

ESG & Environmental Sustainability

The terms “ESG” and “sustainability” are used interchangeably, particularly when it comes to benchmarking and revealing the data. While sustainability is the umbrella term for several green concepts and corporate social responsibility, ESG has become the favored term for both investors and capital markets. Although the industry might have started with sustainability efforts, it has evolved including ESG practices, reporting, performance, as well as relevance to capital opportunities.

Postscript:

Organizations nowadays have a duty to care for the Earth and its people and this can be done only by adopting sustainable practices. More businesses than ever need to invest in eco-friendly and socially responsible practices. Time to develop robust sustainability and implement ESG strategies!

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