What Makes ESG Vital to Today’s Organizations?
By Sarah Hill, August 15, 2023
Amidst the current climate crisis and with rising calls for businesses to be more sustainable, the importance of employing ESG (Environmental, Social, and Governance) is growing, but not all individuals understand the value of ESG to organizations or even know what ESG is.
Amidst the current climate crisis and with rising calls for businesses to be more sustainable, the importance of employing ESG (Environmental, Social, and Governance) is growing, but not all individuals understand the value of ESG to organizations or even know what ESG is.
ESG offers a large array of benefits and a lot of value to organizations. Perhaps the most important way ESG is valuable for an organization is that, if the proposition is strong, it protects a company’s long-term success by considering future risks. That connects to another big value ESG brings to organizations and a risk ESG helps avoid–not losing sales or employees. This is accomplished through increased loyalty and engagement because of higher brand value with sustainable practices that many people today want to see and that employees are happy to engage in as it gives them a greater sense of purpose. Furthermore, a big value of ESG is in increasing access to how and where a company can compete, not just in terms of customers and industry, but for access to funding, as sustainability and ESG are often used as screening tools for investors. With all these benefits of ESG the value seems enormous, but ensuring performance is another step that must be taken.
For a company to track their ESG strategy and performance, they should use key performance indicators (KPIs), a tool also helpful to investors to look beyond the company’s commitments and directly to their impacts, as well as the risks associated with them. A company’s selection of KPIs to use for evaluation is unique, and depends on their specific strategy and goals. For environmental KPIs and for companies focused on reducing their environmental impact, the most relevant KPIs include greenhouse gas emissions, renewable resources usage, resource consumption (such as water), and waste reduction. Depending on the type of organization, another key performance indicator related to sustainability that would be useful is supply chain sustainability, so resources are conserved, not just within the organization, but within its entire supply chain and connected organizations. While sustainability KPIs are a great way to track progress in achieving ESG goals, in order to ensure effective ESG programs, this progress must be reported.
Measuring and reporting on ESG is currently a developing field but the benefits are that companies can hold themselves accountable to the goals they’ve set and improve in areas they’re underperforming in. For investors and consumers, the benefits include seeing and understanding the beneficial actions an organization is taking, and gaining the opportunity to push for change in needed areas. However, measuring and reporting ESG has a number of problems associated with it that must be addressed in order for ESG to be truly effective. A major problem with measuring ESG, for example, is the complexity of information that must be measured like the different classes of emissions (Scope 1, 2, and 3). The problems for reporting include that ESG reporting is currently voluntary (not mandated or even audited), targets are usually aspirational or simply based on what an organization already knows they can achieve, and that much of the information presented in ESG reporting is confusing for readers, even those with a sustainability background.
While the benefits of ESG have been highlighted throughout this blog, the areas for improvement, particularly in ESG measuring and reporting, have also been presented. Simply because some flaws do exist does not mean the technique should not be pursued, In fact, it’s even more reason to pursue–and improve–the practice of Environmental, Social, and Governance–to help business and all its stakeholders, including investors, customers, employees, and our planet and home at large.
Change The Chamber is a bipartisan coalition of over 100 student groups, including undergraduates, graduate students and recent graduates.