ESG: What, How, and Why

“ESG.” We’ve all heard the term all over business publications, government plans, public and private institutions, and pretty much all over social media.

The buzzword has not only been seen and heard everywhere but it has also become an intricate part of responsible investment and management–making it what is arguably one of the most important terms of 2022.

 

So, What is ESG?

 

ESG stands for Environmental, Social, and Governance. According to Investopedia, “Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.”

 

Here’s a quick breakdown of these environmental criteria:

E: Environment

• Environmental criteria may involve a firm’s energy usage, natural resource conservation, pollution, and basic green/non-green practices and operations. 
• Due to the prevalence of climate change and recent concerns regarding our planet, environmental criteria have become one of the key factors that companies are looking at before investing, and when making decisions about their own values and management practices.

S: Social

• Social criteria have to deal with the company’s relationships with other institutions and businesses. It revolves around company values, ethics, showing regard for employees, community service, and other social aspects of everyday life. To make it simple, it is the sector in which other stakeholders and third parties are taken into account.

G: Governance

• Governance includes the consideration of board members, public votes on certain matters, and basic transparency in terms of finance and operations.
• Of course, the legality of the company’s practices is also highly considered and falls in this category as well.

 

We’ve seen a remarkable rise in the amount of ESG investments in the last few years. 

 

2021 was a record year for ESG, with an estimated $120 billion poured into sustainable investments, more than double the $51 billion of 2020, says Bloomberg. They estimate that assets are actually expected to reach $41 trillion by the end of this year.

 

Why is ESG investing so important?

The benefits surrounding ESG investments go beyond the ethical means. Here are some of the key benefits: 

• Competitive Advantage

ESG investments create a competitive advantage for companies by better positioning them to spot strategic opportunities and meet competitive challenges. Companies that give back to their communities and treat their employees properly create a better appeal in the community.

• Reduction of Costs

Companies that shift their business plan to more sustainable methods of production tend to be more efficient and reduce their costs. Not only does it help cut its carbon footprint but it also saves the risk of non-compliance costs, and law violations, and in certain cases reduce costs because the green or smart energy is just that much more efficient.

 

• Higher Chance to Acquire Top Talent

This brings us to our next point. Most Millennials and Gen Z really care deeply about the businesses that they support and consumer from, and therefore and the companies they work and represent. They prioritize sharing the same values and environmental and social responsibility is exactly one of those that they place high importance on. 

Employees who are enthusiastic about the organization and who feel valued will thrive better at that business, thus reinforcing the company’s brand and boosting the overall productivity of the workforce. 

 

• ESG and Capital: A Positive Relationship

Moreover, ESG programs can boost stock liquidity. A lot of money is being invested by individuals and institutional investors into corporations that are proactive in operating in an ethical and sustainable manner. Recent evidence shows that sustainable and impact investing is growing actively at double-digit rates. (Entrepreneur).

“As ESG-minded business practices gain more traction, investment firms are increasingly tracking their performance. Financial services companies such as JPMorgan Chase (JPM), Wells Fargo (WFC), and Goldman Sachs (GS) have published annual reports that extensively review their ESG approaches and the bottom-line results.” (Entrepreneur).

 

How can Companies Get Involved?

ESG criteria has become a very popular way for investors to decide which companies they actually want to get involved in while simultaneously decreasing the risk of investing in a company that might suffer a loss or incurs criticism due to its environmental or social practices.

 

In order to work on your business’s ESG goals you should:

• Determine the most critical areas where ESG needs to focus on
• Conduct an assessment amongst employees, company values, investors, and consider third parties involved
• Make sure your ESG criteria meets required standards
• Allocate resources and define your strategies with accountability measures

Setpoint’s Role

Our business plan takes every aspect of ESG criteria into account, with an increased focus on the “E,” or the Environmental aspect.

Our Climate Intelligence platform helps reduce your bottom line, saves energy, and maximizes efficiency with minimal energy consumption.

Moreover, our business serves some of the biggest industries in energy expenditure, which makes our environmental criteria even more beneficial by reducing their energy consumption and leaving a cleaner carbon footprint. We serve the hospitality management segment, senior living community segments (nursing homes and assisted living networks), as well as office buildings.

 

To learn more about our ESG strategy contact us here: https://www.setpoint.ai/contact-us/

 

In Conclusion

ESG Criteria have not only been increasing rapidly and used more commonly, but it is here to stay. It’s time for every company to take it into consideration when creating or modifying their business plan.

 

The rewards also lie in accelerating growth, cost-reduction, effectiveness, attracting talent, and targeting the consumers of tomorrow–which is why it is now more important than ever. Integrating ESG has been proven to be not only a smart move for businesses but also for the environment, society, and humanity as a whole.