Blog Understanding the 'E' in ESG: Environmental Risk and Protection From a Business Perspective

Sep 8, 2021 2:45 PM ET
Blog

Environmental concerns used to be fringe territory for activists and only widely visible in the wake of a major disaster. Now sustainability, environmental stewardship, and climate change are mainstream focal points.

Customers are backing sustainable products and in some cases are willing to pay more for them. Investor focus continues to shift to socially responsible companies, and industries are subject to more local and global regulations. Because concepts like climate change and sustainability aren’t easily defined, investors adopted the analytical framework known as Environment, Social, and Governance (ESG).

Environment, Social, and Governance (ESG) Explained

ESG is a framework for risk evaluation based on environmental, social, and governance practices. ESG metrics are quantitative, long-term, and can be subject to public disclosure. ESG strategies are complex and require measurable goals, specialized data collection and analysis, and strategic planning. ESG is broken down into three parts:

  • Environmental: The measurement of the environmental impact and sustainability of a particular company and industry. Reporting areas include: carbon imprint, pollution, material disposal, resource management, efficiency, sustainability practices, and future environmental goals.
  • Social: How a company interacts with and impacts employees, customers, suppliers, and communities.
  • Governance: How the company is governed at the top levels. Executive compensation, corruption, conflicts of interest, and transparency are some of the areas of interest.

All three parts require a risk assessment, mitigation, and strategies for future improvement. This post will concentrate on environmental impact and explain the importance of the “E” in ESG.

5 Reasons Why the “E” in ESG Matters

The “E” in ESG can be especially difficult to unpack because “environmental” encompasses nearly every aspect of the natural world. Furthermore, environmental issues are global and interconnected. ESG frameworks condense the concept into measurable units to help investors and leaders understand a company’s environmental risks. ESG consulting services can prepare your business for ESG evaluations and set sustainability practices into place.

Read our top 5 reasons why the "E" in ESG matters in the full article.