ESG & Sustainable Development
Sustainability and sustainable development are a global priority and are motivating governments, businesses and organizations to implement new practices. The development of businesses is linked to ESG criteria. Therefore, the adoption of ESG criteria in the strategy and policy of organizations is a trend in the global economic and business scene.
More specifically, the term ESG refers to issues related to the environment , society and governance . Therefore, improving ESG indicators reflects the resilience of organizations and their ability to deliver value over the long term.
ESG: Environment – Society – Governance
Environmental Criteria
Environmental criteria concern the interaction of the business or organization with the environment and natural resources. In particular, they contain elements such as the energy required by the operation of the business, the waste it produces and the resources it utilizes. In addition, carbon emissions and the impact of the organization’s operation on climate change belong to this category of criteria.
Social Criteria
Social criteria relate to the management of a business or organization’s relationships with employees, suppliers, customers, and the communities in which it operates. Additionally, they relate to equality, diversity, labor, and human rights.
Governance
Governance defines the internal system of practices, controls and procedures that an organization adopts for management and decision-making. For example, governance examines the company’s leadership, executive compensation policy, corruption, transparency, accountability and shareholder rights.
The benefits for businesses that integrate ESG criteria
The benefits to organizations from improving their ESG performance are both immediate and contribute to their long-term growth and resilience.
1# Financing
Investors and financial institutions are increasingly taking into account the performance of borrowers on ESG indicators. Organizations that demonstrate transparency and high performance in areas related to the criteria achieve better credit ratings. As a result, organizations have immediate access to financing on more favorable terms.
2# Reduced operating costs
Improving ESG performance can help reduce operating costs. McKinsey research suggests that ESG strategies can impact operating profits by up to 60%. ESG criteria can help reduce operating costs by eliminating waste and improving resource efficiency. Examples include reducing energy, water and raw material consumption.
3# Increase sales
High performance on ESG criteria leads to increased sales and a higher percentage of satisfied customers. In particular, citizens and consumers around the world are increasingly adopting environmentally friendly practices and are more aware of social issues. Therefore, it follows that 88% of consumers will be more loyal to a business that supports social or environmental issues.
4# Risk mitigation
Measuring ESG criteria helps to reduce operational risks and improve cost accounting. In other words, internal operations use fewer of the available resources while increasing productivity. As a result, the organization is less at risk of being fined for environmental issues or issues related to human and/or animal rights.
5# Satisfied employees
Adopting strategies and policies with an emphasis on improving ESG indicators improves employee relations with the organization and builds new ways of communicating with suppliers and customers. This contributes to the foundation of corporate culture. Studies show that higher employee satisfaction leads to higher employee performance and better organizational performance.
6# Regulatory compliance
When organizations aim to improve ESG performance, regulatory compliance will naturally follow. For example, reducing carbon emissions is a common ESG goal. Therefore, practices and policies that help reduce emissions also facilitate compliance with permit limits and regulatory requirements.
7# Competitive advantage
Organizations that understand the trend towards sustainable development are better positioned in the market. In conclusion, they leverage ESG improvement tools to develop new products and services as well as new processes and business models.
To summarize, in terms of how business growth is linked to ESG criteria, improving ESG performance offers multiple benefits: from reduced costs and better risk management to increased customer and employee engagement. Organizations need to follow a structured sustainable development strategy. The result will be to achieve greater efficiency and better financial performance.
