Environmental, Social and Governance (ESG) criteria are a set of standards for a firm’s operations.
There is growing interest in environmental, social and governance (ESG) considerations in the business community. Many people have strong views and expectations when it comes to corporate behaviour and at the same time an appreciation that businesses are part of the solution to many of the world’s current and emerging environmental and social challenges.
It’s not just investors that are taking an increasing interest in the behaviour of businesses, it’s customers too. Although the origins of ESG criteria stem from the investment and asset management industry, all businesses can engage in being more environmentally and socially responsible.
In the past, sustainability may primarily have been looked upon as a way to manage reputational risk. But in recent years, these objectives have become inadequate and somewhat outdated. The expectation to conduct business sustainably by integrating ESG objectives into the business model has more or less become mainstream and is considered a hygiene factor for modern companies.
ESG is also an opportunity for brand enhancement, attracting talent and customers, and streamlining the business model. While large businesses have the advantage of resources and big sustainability teams to draft up policies and guidelines, develop green products and enter into high-level agreements, small businesses tend to have swifter decision-making processes, less bureaucracy, more flexibility and are sometimes closer to the customer.
Entrepreneurs and small firms often have the advantage of being local, with a story the consumer can identify with.
Going green just makes it better. Smaller margins mean a small business could save a lot through relatively simple changes such as switching to digital receipts, using non-disposable coffee cups, switching to renewable energy, using recycled product material, improve waste management, and so forth. Adjustments that could make a significant financial difference for a small company, while simultaneously decreasing its carbon footprint.
Adapting to ever changing consumer behaviors may feel challenging, but this also brings opportunities for streamlining, cost-efficiency, innovation, and brand-enhancement. As a result, new products and ways of doing business are likely to emerge from those firms that adopt an approach that focuses on ESG criteria.
Consumer behaviour is evolving rapidly. In the past, consumers looked to big established brands as guarantors for quality. However, Millennials (those born between 1981 and 1996) in particular, tend to turn to local brands that have an interesting story and a focus on sustainability, social responsibility, etc.