Environmental, social, and governance (ESG) factors are increasingly important to businesses and investors. The E in ESG refers to environmental impact, the S to social impact, and the G to governance.
While the E in ESG has traditionally received the most attention, the S and G are just as important. Here are some reasons why:
-
The S and G pillars can help manage risk. Companies that have strong social and governance practices are less likely to be exposed to risks such as employee strikes, data breaches, and supply chain disruptions.
-
The S and G pillars can improve reputation and attract customers. Consumers are increasingly looking for businesses that are committed to social responsibility and good governance. Companies that can demonstrate their commitment to these principles will be more likely to attract and retain customers.
-
The S and G pillars can lead to better financial performance. Studies have shown that companies with strong ESG practices tend to have better financial performance over the long term.
Despite the importance of the S and G pillars, they are often given less attention than the E pillar. This is partly because the E pillar is more easily quantified. For example, it is relatively easy to measure a company's greenhouse gas emissions or water usage. However, the S and G pillars are more qualitative and can be more difficult to measure.
Another reason why the S and G pillars are often overlooked is that they are seen as less important than the E pillar. However, this is a misconception. The S and G pillars are just as important as the E pillar, and they can have a significant impact on a company's long-term success.
Here are some ways to develop S and G metrics:
-
Use a variety of metrics. There is no single metric that can capture all aspects of social and governance performance. Instead, it is important to use a variety of metrics, such as employee satisfaction surveys, diversity and inclusion metrics, and boardroom diversity metrics.
-
Use qualitative metrics as well as quantitative metrics. Some aspects of social and governance performance are difficult to quantify. In these cases, it is important to use qualitative metrics, such as descriptions of company policies and procedures.
-
Be transparent about your metrics. Investors and other stakeholders need to be able to understand how you are measuring your social and governance performance. Be transparent about your metrics and how you are collecting and using them.
There are a number of challenges to embedding S and G practices in businesses. One challenge is that it can be difficult to measure the impact of these practices. Another challenge is that it can be difficult to change the culture of a business to one that is more focused on S and G.
Despite these challenges, it is important for businesses to embed S and G practices. By doing so, they can improve their long-term performance and attract and retain customers, investors, and employees.
Here are some tips for embedding S and G practices in businesses:
-
Make it a top priority. The CEO and other senior leaders need to make S and G a top priority for the business. This means setting clear goals and objectives, allocating resources, and measuring progress.
-
Get everyone involved. S and G practices need to be embedded throughout the organisation. This means involving employees at all levels in the process.
-
Use data and metrics. Use data and metrics to track progress and identify areas for improvement.
-
Be transparent. Be transparent about your S and G practices with investors, customers, and other stakeholders.
By following these tips, businesses can embed S and G practices and improve their long-term performance. If you would like to learn more, or you need help with your ESG strategy please do get in touch.
