What Is ESG (Environment, Social, Governance) And Why Is It Important?

In this video you’ll learn what ESG is and why it’s important to incorporate it into your decision making as a company.

ESG stands for Environmental, Social and Governance and refers to the three core factors in measuring corporate sustainability.

The term is derived from the concept of "Triple Bottom Line".

Also known as "People, Planet and Profits" (PPP), which was introduced in the 90s.

It states that companies should focus on each of the three Ps and not just "Profits".

The other two elements of “People” and “Planet” are equally important for a commercial enterprise to be sustainable and profitable.

This concept evolved into ESG.

Today it forms the foundation for doing business sustainably and responsibly.

The environmental criteria looks at how a company contributes to and performs on environmental challenges, such as waste, pollution, greenhouse gases, deforestation and climate, etc.

The social criteria looks at how a company treats its people. It looks at human capital management, diversity and equal opportunity, working conditions, health and safety and misleading sales, etc.

The governance criteria looks at how a company is managed and assesses remuneration of its executives, tax practices and strategy, corruption and bribery and broad diversity and structure, etc.

ESG is based on the simple idea that companies are likely to achieve and deliver strong returns if they create value for all of their stakeholders.

This includes employees, customers, and suppliers.

But it also includes the environment and society as a whole.

ESG analyses therefore focus on the way in which companies serve society and how this has an impact on their current and future performance.

ESG analysis is not just about what the company is doing today. It is extremely important to consider future trends as well.

This necessarily includes disruptive changes that can have significant implications on the future profitability of the business and even its survival.

The rigorous application of ESG practices can improve returns drastically as today’s consumers demand sustainable practices.

Also diligent implementation of ESG profiles can lead to cost reduction because it improved internal processes and helps retain employees and customer better.

Companies seeking to significantly improve ESG factors are also likely to increase their potential to outperform competitors.

By identifying and measuring ESG risks and opportunities, it can deliver both environmental and social benefits at the same time.

A growing number of businesses are currently striving to implement ESG factors to take advantage of business opportunities.

Investors also select sectors and companies by based on their positive ESG performance.

This leads to a more holistic ESG integration that is better positioned to mitigate risk and maximize returns.

Environmental, social, and governance (ESG) criteria are an increasingly popular way for investors to evaluate companies in which they might want to invest.

Many mutual funds, brokerage firms, and robo-advisors now offer products that employ ESG criteria.

ESG criteria can also help investors avoid companies that might pose a greater financial risk due to their environmental or other practices.

More recently some investors have come to believe that environmental, social, and governance criteria have a practical purpose beyond any ethical concerns.

By strictly following and implementing ESG criteria companies may be able to avoid exposing themselves to risk to avoid public scrutiny.

BP's 2010 oil spill and Volkswagen's emissions scandal, both of which rocked the companies' stock prices and resulted in billions of dollars in associated losses, are an example of this.

[MitchellColbert]

So is ESG the newborn king? I am confused by your music choice.

[amysuperiore]

I wish this video had a voiceover. If I wanted to read something I would have found an article....

[ZedGames]

ESG is a roundabout way of controlling the carbon output of individuals, despite the masses being responsible for very little carbon pollution. This will lead to laws like “you can only use this many gallons of gas per month, afterwards you are taxed at 50%” or setting standards where citizens will be required to submit a request to travel and the government will approve/decline your request based on your travel history, electricity use, etc.

[litestuffllc]

Sounds lovely - only problem is - who is having the authroity to set such goals - some non elected bunch of self appointed gurus? No thanks.

[bubasmollett]

who gets to decide the standards? If a cooperation is pushing policies that will force the average person to lower their energy consumption, but their CEO flies a private jet, how does that effect their e score? If a company hires racially diverse people who all share the same political world view and another company has people of one race but different financial and political backgrounds do they get similar scores, or is it all about "the color of their skin" as Reverend Doctor King would say? Would they gain, or lose points for monitoring employees private social media accounts and firing them for expressing a point of view the company doesn't like? If they condemn Israel but support Palestine, a territory that imprisons people for being gay, does that count for or against them. How large of an impact does doing business with China, the biggest polluter in the world who uses Muslim slave labor, have on their score? If they put a rainbow avatar on their western accounts but not their eastern accounts does it cancel out? Also, who pays for this rating system?

[annmatthews]

Sounds exactly like government control to me!

[Johnnyd]

Because of crap policies like this where countries like Sri Lanka the people are starving..🙄

[sidiebnou]

Scam has nothing to do with business. Evil scam

[aig]

How does an energy provider eg electricity company or mining company applies ESG when their core business is against it?