The Global Impact of ESG
2022 has brought effects of climate change to the forefront. Be it floods in Asia, rising temperatures across Europe, or forest fires in Australia, the rapid speed at which climate change is occurring has shocked the world and made us search for solutions to counter it immediately. Corporations, investors, stakeholders, and employees are now seeking to understand how they can make a conscious impact on slowing, if not reversing the effects of climate change, and this is manifesting in a sharp increase in ESG and what it means for the transition to sustainability.
So, how has ESG impacted the world?
Companies benefit by adopting ESG practices
Defining and reaching sustainability has become a significant benchmark of progress for organisations across the world, and ESG is evolving both conceptually and as a guideline framework for the sustainability transition. It covers all the aspects of change required meaning, environment pertains to resource use, renewable energy, pollution through factories and vehicles, and so on. The social and governance aspects prioritise fair treatment of people and communities, emphasising the support of diversity and inclusivity for employees both in the workplace and at home, the number of women in the board of director positions in a given company, and diverse hiring practices. Such practices are, if still evolving, now firmly in the mainstream and are, by many corporations, starting to be codified into standard procedure.
The media’s coverage of environmental change and ESG issues has also led to a major impact on the global audience, since ESG is also one of the main objectives of the United Nations Sustainable Development Goals, which have provided a template to assist companies in becoming more accountable both for reducing their carbon footprint and for adhering to global ESG standards with mandatory disclosure of their ‘ESG ratings.’ In order for companies to have a transparent and impartial ESG rating, companies such as MSCI and Refinitiv offer a third-party auditing service to ensure the public and investors of absolute transparency in assessment, and as a result help to gain trust in their respective businesses.
Company brand image is automatically boosted when ESG issues are not only included in their overall business strategy, but form the foundation of it. ESG funds have seen an exponential boom in recent years, investors react positively when ESG sways public sentiment. According to Morningstar, an American financial services company, ESG funds exceeded USD 350 billion in net assets in 2021 in the US. Furthermore, companies adopting a sustainable financial strategy are more likely to see improved commercial returns as compared to companies that have not taken ESG factors into consideration. Companies have realised the fact that, in order to flourish or stay relevant in the future, ESG in some form will need to feature prominently in their business strategy.
New career options
In our article on ‘Benefits of becoming ESG certified for professionals’, we saw that companies and investors are looking for professionals with a solid understanding of ESG issues and how they affect a company’s organisational performance concerning sustainable development. Professionals have increasingly upskilled for a sustainable business future by taking various ESG certifications. While such additional skills and knowledge can help ‘future-proof’ one’s prospects in current roles, in an ever-competitive marketplace it also opens up the possibilities for direct professional positions within the ESG sector. Specialised jobs like ‘ESG analyst’ and ‘ESG advisor’ are in higher demand as the need to create and implement sustainability policy rises across all sectors.
As mentioned in our article on ‘5 tips to attract youth to ESG investments’, youth priority while job hunting has taken a massive shift since the pandemic arrived. Younger people are more focussed on companies that are making ESG a priority in their overall business plan and are more likely to join them based on such factors. Young investors, stakeholders, and employees are more concerned about environmental sustainability now than traditional business performance values. Perhaps one of ESG’s major impacts has been professionals prioritising their mental health and well-being, along with becoming more environmentally conscious when opting to join an organisation or to leave one. Concurrent factors, such as the shift in employment attitudes during and following the COVID-19 pandemic, have also sharpened the sense that environmental, social, and governance values are playing an increasingly large role in job choices.
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Environmentally Conscious Consumers
According to a survey by Deloitte, consumer behaviour has taken a massive shift since the pandemic, with people increasingly making conscious decisions that prioritise sustainability and the environment. They are finding more innovative ways to spend less by adopting a sustainable lifestyle and choosing goods that are more durable, or that can be reused or repaired easily. According to a survey by McKinsey, 75% of millennials consider sustainability when they make a purchase. Consumers align themselves with brands that share similar values and interests, and ESG is one of the main driving factors behind this change in consumer attitude and behaviour while purchasing products.
A Common Goal
ESG has not only made companies and professionals realise the importance of taking action toward sustainability and adopting sustainable living practices, but has also, especially through highly visible initiatives such as the UN SDGs, served to highlight the urgent need to address a growing global catastrophe at the global level. In our article on ‘ESG Events-What’s the value of attending’ it was mentioned that by attending ESG events teams can not only develop a company’s brand image but also interact with people from different parts of the world to gather more diverse viewpoints on sustainable investing. One of the major points mentioned was that ESG events provide a common, global platform where experts specialising in various disciplines can collaborate more effectively on the inherently global issues that we face.
Conclusion
ESG has, over the last few decades, and under different names, made a powerful impact on the world we live in. From companies adopting corporate social responsibility (CSR) practises twenty years ago, and which are now adopting mainstream ESG learnings as their operating framework, things are changing. No longer a peripheral issue, it is becoming necessary that companies educate their people to become more aware of climate change, its current and future impacts, and how this is directly related to their business environment.
Also, as ESG continues to inform the way we work, it helps to normalise the reality of climate change. We are aware of not only the environmental damage to the planet, but also the social and governance aspects that reveal the underlying systemic problems of how we value human capital in the first place, of how our economic system is predicated on inequality, and how inequality is so tightly bound to environmental poverty or wealth. As ESG continues to develop as a practical business methodology, it will continue to create meaningful impact, at the global level, in how we manage the transition to a more fair, equitable, and ideally, regenerative model of economic thinking.
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