The term Environmental, Social and Governance, or ESG, refers to a broad set of issues or criteria relating to corporate behaviour and performance that generally fall outside of the traditional financial performance indicators. ESG issues might include, for example, how a company responds to climate change, how it supports equity, diversity and inclusion within its workforce, and how its board and management structures and corporate policies support ethical, accountable and transparent practices.
To better understand ESG matters and how business leaders can drive ESG within their organization, this paper provides a practical and high-level overview of the legal, operational and reputational tenets of an effective ESG strategy.
There has been a sharp increase in the focus on ESG issues across Indigenous communities and all stakeholders. Investors are increasingly evaluating the strength of a company’s ESG performance as part of their investment decisions. Sound ESG practices have been linked with stronger operational performance, valuations and higher returns, and many investors are using ESG criteria to decide how to allocate capital. We are also seeing an increasing interest in ESG from other stakeholders. Employees often identify ESG performance as an important factor for retention and motivation within the workplace. Customers are increasingly looking to do business with companies and brands that are aligned with their personal societal values. There is no doubt that the momentum of ESG is accelerating, driven in part by factors such as the pandemic, social justice and ever-growing environmental concerns. Companies are responding by building resilient and sustainable business models.
Factoring ESG considerations into corporate decision-making is not new. There has been a shift over many years away from a shareholder-centric form of corporate governance, where decision-making focuses on short-term value and immediate profits, to a more holistic approach that considers multiple factors and interests as part of the overall sustainability and best interests of the business. This shift is occurring in public policy, legislation, and the general environment in which organizations operate.
When it comes to implementing ESG factors within an organization, it is not a one-size-fits-all approach. Rather, ESG platforms must be customized to address each company’s unique circumstances—including the type of business, the sector, the geographic location of operations, supply chains, and importantly, the nature of the ESG issues that are of importance to the organization’s communities and stakeholders. ESG provides a means by which organizations can identify these priority issues for their business, and implement systems to take an active, rather than passive, approach to managing them. In doing so, ESG values and considerations can be embedded within an organization in order to integrate these values and considerations into the core business strategy.
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