Importance of ESG
Human rights and environmental concern are factors that have revolutionized the investment market, with investors considering more factors today than they used to before investing. Growing environmental concern all over the world is one of the main reasons why many investors today only choose to invest in companies that take measures to conserve the environment or at least mitigate the impact their actions have on the environment. Other issues taking the forefront in investors’ minds are gender equality, employee welfare, and fair compensation. Today, non-financial factors are given equal weight as financial factors. Companies today are therefore encouraged to take measures that leave the world better than they found it. For a company to be successful today, it has to pay attention to ESG issues. ESG stands for environmental, social, and governance issues. ESG is a topic that needs more attention, seeing as many corporate executives do not know what it entails. The evolution of social norms makes ESG vital in every company. This article seeks to delve deep int ESG and its importance to companies today.
ESG proponents argue for three main factors, and environmental is one of them. A lot of attention needs to be paid to this factor because companies’ actions are depleting resources and generally destroying the environment. Decisions to protect and clean up the environment need to be made at the strategic level if a firm wants to be progressive.
ESG also looks at social issues. If you want to remain relevant in today’s business world, ensure that you pay attention to social issues. Some of the social issues corporate executives need to pay attention to are leadership techniques, labor relations, health and safety measures, and gender equality.
Governance is the third pillar of ESG. Governance refers to the processes of running a company. Issues such as executive compensation and bonuses to employees’ compensation and bonuses need to be looked into.
One major benefit of ESG is that it makes capital cheaper. A lot of executives today believe that ESG is expensive, but this is not the case. If you comply with the spirit of ESG, then you will see a reduction in your cost of borrowing, which is important if you want to see a difference in our books of account.
Companies that take time to understand what ESG entails and implement it also benefit from an increase in their human capital. This is because ESG has to do with factors such as employee welfare and gender equality. The way you treat your employees will determine how they treat your company in return. This is why ESG encourages companies to invest in their employees’ welfare.