Why Is ESG So Important?

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by Richard Turner, Chief Editor at KnowESG
KnowESG on ESG importance
Why ESG matters

If any further evidence were needed, 2022 has, thus far, starkly underlined how quickly anthropogenic climate change is accelerating. A deluged Pakistan, drought across Europe, forest fires from California to Siberia, and disrupted weather patterns that parched harvests. 

We are now living through climate change. And, while our economic activity caused it, how we modify our economic activity to both mitigate and accommodate climate disruption is the challenge of our time. Environmental, social, and governance (ESG) frameworks are the key to aligning global business in the direction of that challenge, by outlining both where we stand and what action we can take. 

The ESG Evolution

Growing out of the movement for socially responsible investing, ESG has come to cover the necessary breadth of issues that truly underpin differing notions of sustainability in business, so that we now discuss how ESG can form the DNA, the very identity of a company and its people. 

In short, the ‘Environmental’ covers how we use resources and energy, what we emit, pollute, and how we manage the effects of these in our communities and the world around us. This element could be seen as the most ‘traditional’. The ‘Social’ and ‘Governance’ have perhaps evolved to deal with the truth of how we can approach the first element, namely, by developing structures of justice and fair treatment for people, while providing oversight and compliance mechanisms to engage responsible management of business interests.

So, what has this meant in real terms?

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The ESG Revolution

Since public disclosure of ESG-related performance criteria is not yet a mandated feature of law, the fact that ESG practices have become so mainstream over the last decade points, excitingly, to how much public awareness of sustainability news and ESG issues, as well as the creation of systemic objectives, such as the UN Sustainable Development Goals, have provided the necessary pressure for companies to visualise, benchmark, and take action.

The real, tangible outcome here has been growing voluntary disclosure of ESG scores, or ‘ESG ratings’ based on company performance measured against selected criteria across the ‘E’, ‘S’, and ‘G’. Companies such as Refinitiv, MSCI, and Sustainalytics offer these third-party auditing services, a level of impartiality that generates investor and public confidence in businesses.

What feels ‘revolutionary’ is the scope of choice afforded companies. They may choose to focus on developing environmentally-beneficial initiatives, operational efficiency that reduces waste, or fair labour policies that establish industry best practices. Equally, management may adopt stringent governance measures that counter prior mistakes and improve brand reputation. A single focus or a mixture of any or all elements, ESG seeks to make the choices for change possible.

ESG Ratings: A Benchmark For Performance

Where We Stand

Above all, what matters is that companies do choose to take action. At KnowESG, we recognise that a lack of access to reliable ESG information, resources, and inspiration can all lead to an institutional lack of conviction that you, your employees, or your company are eligible to formulate ESG strategies that work for you and can create meaningful impact.

This is why we are working to help companies hear the signals through the noise, to stay informed and inspired via current ESG news, to participate in global ESG events, and to discover the educational opportunities through ESG courses that provide the know-how to develop impactful sustainability strategies relevant to any company, anywhere, no matter the size or level of progress. 

Most importantly, ESG has developed to be inclusive of all types of economic activity. Based on a foundation firstly of respect for our world, our relationships, and how we become responsible for our economic activity and impact, we are now starting to understand how to move from being purely acquisitive to operating sustainably, and ultimately with regenerative action towards the planet.

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