Corporate Social Responsibility was a term associated with a company’s accountability towards the country, be it for the environment or its citizens. Education or health initiatives were shouldered as part of its cultural milieu to give back, in simple terms. With the UN driving sustainable development goals at the grass-root level, companies are increasingly pressured to step in. However, the discerning factor here is measuring the change, measuring the sustainability factor. ESG steps in – ESG Investing (also known as “socially responsible investing,” “impact investing,” and “sustainable investing”) refers to investing that focuses on efficient environmental, social, and governance (ESG) factors or outcomes.
ESG is a mental mandate that will soon become a legal mandate for the reasons listed below.
COVID19 – The Tipping Point
The COVID-19 pandemic has been a powerful ESG catalyst that has pushed the frontiers to ensure increasing accountability by corporates and investors to assess ESG risk effectively and meet the increasing stakeholder emphasis on social issues. The need of the hour is to reinvent the wheel in the approach to climate scenario analysis and drive the post-COVID-19 pandemic green recovery and energy transition.
Customers and Leaders think alike
Customers, particularly the Gen Z, have an inclination to support brands that exhibit concern for ESG issues. Millennials want to know more about responsible investing. Moreover, CEOs feel it is their responsibility to ensure that the organization’s environmental, social and governance (ESG) policies reflect the values of their customers. 55% of CEOs believe that their organizations must look beyond purely financial growth to achieve long-term, sustainable success. Annual general meetings will see increased support for ESG-based proposals. Companies have already been pledging and following social factors such as being equal opportunity employers. The pressure for environmental and governance factors is increasingly becoming the need of the hour.
Pledge to Responsible Investing
UN sustainable goals have had far-reaching outcomes. There is a recognition of the need to generate long-term sustainable returns that depend on sound and well governed social, environmental, and economic systems. While on the one hand, financial value creation is essential, non-financial value creation is equally important. Going forward, the non-financial value creation will need to be supported by data. Climate based disclosures might be looking at getting mandated for completeness and quality.
Investor Requisite
Investors surveyed state that they now attach greater importance to companies’ ESG performance when it comes to their investment strategy and decision-making. The future will see ESG investors and regulators exerting pressure on companies to substantiate their claims with metrics of environmental impact. Therefore, beyond implementation, the impact of it in measurable terms will be required.
Big Tech Bigger ESG
Large technology-based organizations function at default level with fossil fuels and are therefore answerable to ESG related concerns. The next target will be organizations that operate for achieving state-of-the-art technology. Digital footprint and its impact on carbon footprint will cross and merge lines, further raising concerns regarding data privacy and cyber-attacks. Their customer base, too, will push for being secure. Leaders will find themselves answerable to different aspects of their businesses.
Reliable and Transparent Data
Transparency builds trust across all stakeholders. Sharing experiences and insights reveal the intention of the company from the core. ESG reporting can be highly beneficial to business and provides a competitive advantage with investors, customers or employees. 49% of US and UK survey respondents stated in a survey conducted by bigdata that their organizations regularly change business decisions purely based on ESG data considerations.
Finally, be it customers, investors, or technology, the dictate will be ESG. The sooner leaders implement it, the more sustainable will be solutions. The earth we leave behind will not be on borrowed time but on gifted, offered, provided for future generations to cherish.