What is Environmental, Social, and Governance (ESG) and why should your business care?

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:

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?

1. 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.
2. 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.
3. 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.
4. Employee attraction and retention
   Amidst a war for talent, ESG credentials can be a real differentiator to securing top talent.
5. Attracting investors
   Around two-third of investors take into account ESG factors.
6. Impact on insurance
   A recent MMC survey of insurers  highlights the benefits that ESG thinking is having in the development of the underwriting process.
7. 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 is very important. Future partners want to know your business’s ESG story, so it’s vital you tell your own version. If you don’t assess and communicate your ESG credentials, someone else will. ESG however can be highly complex to embed into your existing processes and procedures.

At Marsh Commercial we offer a consultative service* that guides you through assessing, enhancing, and communicating your ESG credentials.

Find out more about this service on our new digital marketplace.