The need to align your environmental, social, and corporate governance (ESG) strategy with your company’s values has never been greater. ESG investing is on the rise and by 2025, Deloitte predicts ESG assets in the US are expected to hit £27.1 trillion.
COVID-19’s disproportionate impact, wildfires and social unrest in the US are just some of the factors that have reinforced the importance of ESG since the pandemic hit. Companies are becoming increasingly focused on addressing ESG and in a survey carried out by PwC, 70% of CEOs listed ESG as a key concern this year, compared with 44% two years ago. However, it’s important to do more than just ‘address’ ESG. By purposefully embracing ESG, you can drive sustainable long-term growth, build a stronger corporate brand and gain access to large pools of capital.
What is ESG?
ESG evaluates a company’s contribution to sustainable development and its risk management of minimising negative impact. Environmental criteria consider a company’s impact on the environment. Social criteria include human rights, work standards, and examine relationship management not only with employees and customers but with communities a company operates in as well. Governance refers to a company’s leadership structure, policies and procedures.
How is it Measured?
Investors will use these standards to evaluate how a portfolio aligns with their values. As a broadly accepted framework to measure ESG does not currently exist, investors might measure the relative value of a given ESG criteria to: the investors’ own history, peers managing comparable portfolios or a common benchmark index (there are various ESG rating systems).
By 2030, $4 trillion worth of assets are estimated to be at risk from climate change, so investors are becoming increasingly interested as research suggests ESG investing reduces portfolio risk, as well as generating competitive investment returns.
Purposefully Embracing your ESG Strategy
It’s not enough to state your ESG values if they aren’t purpose-led from the inside-out. By engaging your employees and aligning your ESG strategy with their values, they will help drive your company’s ESG strategy forward. Companies that embrace ESG strategy and embed it purposefully in the culture of their organisation will attract and retain the best talent, unlock competitive advantage, build a stronger reputation and ultimately, benefit from greater financial success.