What is ESG and what does ESG stand for?
ESG stands for environmental, social, and governance (ESG) and is the term used to identify and evaluate matters that are traditionally associated with sustainability or corporate responsibility – focussing on the impact on the environment and wider society. This can include:
|Climate change||Pollution control||Diversity & social inclusion||Health, safety & wellbeing||Executive pay||Supply chain management|
|Waste and resource management||Biodiversity||Community impact and integration||Remuneration and pay equality||Reporting and financial transparency||Anti-corruption|
A common misconception is that ESG only focusses on climate change and environmental performance. But the social aspects and a business’s governance of them can be equally important.
Where did ESG come from?
ESG was a phrase first coined by the United Nations in the early 2000s initially as a way to encourage more ethical investment practices. World leaders responded in 2006 with the report “Who Cares Wins – Connecting Financial Markets to a Changing World”. It provided guidelines for companies to incorporate ESG into their operations, and was the first time the terminology ESG was used as a measure of climate change mitigation.
Why is ESG important to my business?
- ESG is increasingly seen as measure of sustainability and resilience
The criteria are progressively being used to inform strategic goals, operational execution, and the reporting of sustainable business practices to key stakeholders/customers.
- Impact on the supply chain
Customers, suppliers, and end consumers are all beginning to look at sustainability credentials throughout the supply chain. This is driven by the need to understand and quantify Scope 1, 2, and 3 emissions. On the road to net-zero, one of the main ways that companies’ greenhouse gas emissions are measured and assessed is to look at them within these three different ‘scopes’. Learn about these scopes by visiting the national grid.
- Securing commercial opportunities
There is a view that ESG is something only big organisations should, and are, focussing on. However, customer and supply chain pressures are now driving the message of ESG down the supply chain of larger organisations, requesting reference to ESG strategies from their SME suppliers. Larger organisations are requesting this information and are looking for alignment with their own ESG strategy. In short, they want to ensure that the products and services they are procuring help them achieve their ESG ambitions.
- Employee attraction and retention
Amidst a war for talent, ESG credentials can be a real differentiator to securing top talent.
- Attracting investors
Around two-third of investors take into account ESG factors.
- Impact on insurance
A recent MMC survey of insurers highlights the benefits that ESG thinking is having in the development of the underwriting process.
- Impending regulations
SMEs will be under pressure to report on ESG from regulators. Although this regulation is yet to take shape, it will come, so it pays to be prepared. While SMEs might not need to report for Task Force on Climate-Related Financial Disclosures (TCFD) any larger organisations they work with will and therefore their ESG strategy will be under scrutiny as a result of this.
Here to help you tell your ESG story
Being able to articulate your position and give some indication of what your business’s ESG ambitions are is very important. Future partners want to know your business’s ESG story, so it’s vital you tell your own version through a robust stakeholder engagement strategy. If you don’t assess and communicate your ESG credentials, someone else will.
That’s why we’re here to help. ESG can be highly complex to embed into your existing processes and procedures. As part of Marsh, we have the capabilities to help you tell your ESG story to suppliers, future partners, and insurers. Providing solutions such as an ESG Reporting Framework* to guide you on the structure for annual sustainability reporting, collating information from across your business.
Our colleagues in Marsh recently launched the ESG Pulse Check. This provides you with clear recommendations on which standards to address in your business, and what resilience measures you could look to deploy - in just 12 simple questions. Start your ESG Pulse Check here.
Arrange a meeting with your Marsh Commercial account executive to discuss any of the talking points raised in this article, or to learn more about our menu of ESG services. Alternatively get in touch and a one of the team will contact you.
The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.