Is ESG good for business?
Is ESG good for business?
ESG stands for environmental, social, and governance factors. As ESG, or environmental, social and governance factors, gain more attention among businesses large and small, the question of whether ESG is good for business remains in the air. ESG initiatives were once reserved for nonprofit organizations; today they are widely implemented by both for-profits and nonprofits alike. ESG considerations help companies create a positive impact on society (and vice versa).
The link between ESG and business has not yet been substantiated across all industries, but studies show that ESG issues do affect profitability. The relationship between ESG concerns and shareholder value can be seen in certain industries like oil & gas (concerns over water damage), utilities (concerns over energy costs) automotive (diversity hiring practices) to name a few. ESG is a complex, multifaceted issue and in all cases ESG factors should be considered with great care by both ESG experts and business leaders who have the ability to implement ESG practices within their organizations.
While ESG is often associated with environmental issues such as climate change or deforestation, ESG extends into areas that also affect people (human rights) and society (culture). Companies like Starbucks demonstrate how ESG can be applied to positively impact culture. Since 2015, Starbucks has offered tuition reimbursement for workers to earn an online degree through Arizona State University’s innovative program; the coffee giant has partnered with ASU since 2012 and 80% of its staff has pursued or is currently enrolled in the program. The benefits ESG can have on society are not limited to corporate employees. ESG initiatives can also positively impact the communities where companies’ products are being made, whether it is fair trade practices or improved working conditions.
As ESG factors become more prevalent, businesses large and small must be prepared to answer ESG questions from consumers, regulators and shareholders alike if they wish to stay competitive in their chosen industry. ESG may help attract new clients as millennials express a preference for sustainable brands like those that appear on the “Fortune Magazine’s 100 Best Companies To Work For” list . Even investors now see ESG as an attractive feature; major asset managers such as BlackRock now focus solely on ESG issues by creating separate ESG funds (which offer higher returns than ESG-free funds, according to Morningstar). ESG gives proactive companies an opportunity to get ahead of the competition; it also grants them the flexibility to make bolder decisions without fear of backlash. ESG issues are not going away, and for this reason they must be taken seriously by business leaders across all industries.
Takeaway: ESG can positively impact businesses in many ways through its positive impact on culture, society, people and the environment. ESG should be taken seriously by business leaders.
Patricia Baronowski-Schneider
President
Pristine Advisers
Tel: 631–756–2486 | Fax: 646–933–0177
E-mail: pbaronowski@pristineadvisers.com
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