What exactly does ESG compliance mean?

Environmental Social and Governance (ESG) are standards that investors use against which to measure a business’ sustainability. Environmental requirements are related to how corporate policies are designed to safeguard the environment. Social responsibility examines how businesses handle various stakeholder relations which include suppliers, employees, communities, customers and suppliers. On the other hand, Governance examines the executive leadership, the rights of shareholders, pay and auditing as well as internal controls, measures and procedures.

Environmental, social and governance issues and compliance is becoming more and more vital as nations all over the world start implementing regulations to ensure the conduct of businesses is ethical and sustainable.

Why should my business care about ESG compliance?

Stakeholder groups such as government officials, investors as well as consumers are under increasing demand for greater transparency in their business practices. This is why more companies are making these disclosures in their sustainability reports, also named corporate social responsibility or ESG reports. Although the efforts are mostly focused exclusively on private sectors, they are now becoming more widely used.

ESG compliance is essential if a business is to succeed and be sustainable. ESG compliance can also bring benefit to your organisation in the following ways:

• Meeting investor requirements
• Investors globally are progressively looking at a company's ESG policies and whether the company lives up to these policies as a measure of whether they are an attractive investment. Will they invest in your company or not?
• Reduction in business cost
• By using fewer fossil fuels, reducing energy and water waste, and moving towards a paperless office, an organisation can save on costs while meeting specific ESG requirements
• Top-line performance improvement
• The World Economic Forum proclaims that companies can achieve 20% higher profitability if they take Environmental, Social and Governance earnestly and entrench it within the organisation
• Attracting and retaining employees
• Companies with a firm ESG policy tend to have a lower staff turnover. They also tend to attract more talented individuals than those with no or low ESG scores

How can my business improve its ESG score?

There are a variety of resources offered to companies to assist them in meeting environmental, social and corporate governance regulations. ESG encompasses a broad range of topics, ranging from sustainable consumption to climate action. Businesses can guarantee accurate reporting and communications to key stakeholders by adopting an overall strategy.

ESG compliance programs can be challenging and they require an enterprise-wide commitment. Board leadership must be committed to ESG including effective employee policies and procedures. It is vital to integrate ESG themes into internal communication and training. It is also essential to conduct effective investigations after an incident. Click here to download our comprehensive ebook on "5 Steps to improve your ESG Performance."

Is there any accreditation that can help my company be more ESG compliant?

Through accreditation such as ISO 9001, ISO 14001 and ISO 45001 a business is assured to be more ESG compliant. ISO 9001 accurately sets quality management system requirements; ISO 14001 relates to requirements regarding the management of the environmental system and ISO 45001 refers to standards pertaining to health and safety in the workplace. If there are limitations to acquiring this accreditation, you can outsource the relevant services to an accredited company such as Pandae Green Solutions which will assist in improving your company’s ESG compliance.

Impact of ESG factors on a company's financial performance

There must be a balance between environmental, social and governance (ESG) factors and a company's financial performance. These factors are closely related to an organisation’s operations and growth. For instance, a company's profitability will be influenced by how it manages its risks and ecosystem. Consider both the positive and negative effects of environmental, social and governance factors can help the company in making promising and beneficial decisions.

The ESG criteria on which a company should focus depends on its objectives and industry. For instance, a palm oil producer in the rainforest has a very different ESG profile than a company in the developed world. A company which invests in sustainable agriculture practices will emphasise more on environmental policies and governance. The impact on a company's bottom line will be slower for a company that invests in sustainable development.

Implementing Environmental, Social and Governance practices may seem like a challenge for businesses but implementing these practices can improve performance. In order to implement these principles, businesses need to alter their internal decision-making processes. They need to employ a mathematical approach to analysing environmental and social variables. Companies should also alter the positioning of their business to boost the efficiency of their finances. Many companies attempt to avoid these trade-offs by offering incentives to encourage healthier behaviours regardless of the possibility that this will lead to less profits.

Dimensions of ESG factors

When analysing your business, it is crucial to look at the way in which performance in aspects of ESG impacts the global environment. As the world becomes more complex, companies must take steps to improve the performance of their environmental practices. This includes improving the quality of natural resources, creating an efficient workforce and ensuring a healthy climate.

While ESG ratings are becoming increasingly popular, they can be challenging. Companies may find it difficult to compare their ratings because the frameworks and criteria used for risk assessment are not consistent. Companies may also encounter other barriers including competing business priorities and reporting standards which may be a reason for companies to delay their ESG efforts. However, with careful consideration, companies can maximise the benefits ESG initiatives offer and ultimately, this approach will help drive more profits for these companies.

Social impact

ESG, or Environmental, Social and Governance is an increasingly popular strategy for investment companies and real estate companies. These strategies can help improve the monetary returns of portfolios and assets while ensuring they meet social and environmental goals. However, despite the benefits, there are some critical challenges in implementing these strategies.

It is essential to measure how social impact affects financial performance. To do this one can use a social return ratio which is calculated by dividing the present value of effects by the total investment. Another approach is to use accurate impact measurement which combines stakeholders' voices and focuses on changes in the community, over time.

The social component of ESG focuses on relationships such those between other financial stakeholders as well as the broader political environment. These relationships can profoundly impact a company's financial performance and, in addition, public perception. It is vital to recognise that every action has an opposite reaction and so every business decision will therefore have a social impact.