What is ESG

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ESG is a collective term for a business's impact on the environment and society as well as how robust and transparent its governance is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.

It measures how your business integrates environmental, social, and governance practices into operations, as well as your business model, its impact, and its sustainability.

The three components that make up ESG are environmental, social and governance.

 

Environmental

The environmental aspect focuses on how the business minimises its impact on the environment. It covers the business’s products/services, the supply chain and operations.

ESG allows the business to target different areas of its organisation and implement more sustainable, ethical practices.

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Examples of environmental business practices include:

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• reducing energy and using renewable energy sources to become a net zero organisation

• developing greener products and services

• switching to zero-waste products or sustainable packaging using biodegradable materials

• reducing carbon emissions by changing to LED lighting

• encouraging recycling and reducing the amount of waste destined for landfill.

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Social

The social aspect focuses on how a business impacts wider society and workplace culture.

Organisations can positively contribute to fairness in society, investing in fair and equal opportunities and conditions for employees, people working in the supply chain, and local communities. Equality and fairness are at the heart of this aspect and examples of social and ethical business practices include:

• ensuring products are safe and customer data is secure

• preventing abuses within the supply chain, such as labour rights, including modern slavery and freedom of association

• providing training and supporting health and safety, and wellbeing

• promoting equality in the workforce with diversity and inclusivity policies

• investing in local community projects, such as funding educational initiatives.

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Governance

Governance refers to the processes of decision-making, reporting, and the logistics of running a business. It also looks at the business's ethical behaviour and its transparency with stakeholders about its activities. Governance is linked to the environmental and social aspects of ESG in that it looks at the transparency and decision-making behind them.

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Examples of governance practices include:

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• accurate reporting to stakeholders on financial performance, business strategy and operations

• ensuring business leaders and managers are accountable for risk and performance management

• undertaking business ethically, such as preventing bribery

• ensuring diversity in any leadership team and being open about executive pay.

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