In recent years, the concept of ESG has become increasingly popular in both the corporate and public sectors. But what does ESG mean exactly? And how does it apply to your own workplace?
In this article, we’ll delve into the definitions of ESG and explain why it’s important for companies to make sure they are following ESG principles and how this can help create a healthier and more sustainable working environment.
- "ESG" stands for "environmental, social, and governance," and refers to the impact an organization has on society and the environment
- A sustainable ESG strategy aims to improve the long-term sustainability of the organization
- Employers are increasingly considering ESG factors in their decision-making in order to ensure their company operates in accordance with good corporate governance principles
- A company's ESG performance can help improve employee satisfaction and attract new talent
- The majority of investors consider ESG factors important to their investment decisions, and almost half express willingness to divest from companies that do not take sufficient action on these issues
- You can demonstrate the effectiveness of your actions in a meaningful way to potential investors by using a standardized ESG framework
Defining ESG: Environmental, Social, and Governance
ESG stands for “environmental, social, and governance”. It encompasses a company’s or organization’s impact on the environment and society, as well as a broad range of issues that can impact a company’s long-term sustainability and performance. Here’s a closer look at each pillar:
This pillar refers to a company’s impact on the environment. Issues like a company’s emissions, resource conservation, pollution prevention, its use of renewable energy, its waste management practices, and its water usage fall under this category.
This pillar is about a company’s policies and practices related to its employees, customers, suppliers, and the communities in which it operates. The treatment of employees, diversity and inclusion policies, fair labor practices, and involvement in the local community are all examples of social considerations.
The last pillar looks at a company’s internal policies and procedures around risk management, ethics, board structure and composition, shareholder rights, executive compensation, etc. Good governance helps ensure that a company is run in an ethical and responsible manner.
Why Is ESG Important for Employers?
Employers are increasingly considering ESG factors in their decision-making to ensure their company is a good steward of natural resources, promotes social responsibility, and operates in a manner consistent with good corporate governance principles. Here's why ESG matters to them:
Attract and Retain Talent
ESG can help them attract and retain talent. More and more employees are interested in working for companies that have strong ESG practices. They want to know that their employer is committed to making a positive impact on the world and that they are able to play a role in those efforts.
Improve Employee Engagement
ESG can help improve employee engagement and productivity. Employees who feel like their company is making a difference are more likely to be engaged in their work and motivated to do their best. And when employees are engaged and productive, it positively impacts the bottom line.
Environmental risks such as climate change, water scarcity and air pollution pose major challenges for companies. At the same time, social risks such as human rights violations and corruption can lead to reputational damage, legal liabilities and financial losses due to mismanagement or fraud. By taking action to mitigate these risks, employers can protect their business from such consequences.
Create Growth Opportunities
Sustainability-conscious consumers are becoming more aware of the environmental and social impacts of their purchasing decisions and are looking for ways to reduce their environmental footprint. As a result, they are increasingly willing to pay more for products and services that align with their values.
By integrating sustainability into their operations, companies can appeal to environmentally and socially conscious consumers, and improve their overall efficiency and performance. In other words, ESG can create growth opportunities by capitalizing on the growing demand for sustainable products and services.
Why Is ESG Important for Employees?
Studies have found that top employers, as measured by employee satisfaction and attractiveness to talent, have significantly higher ESG scores. This finding suggests that ESG performance can help companies both improve employee satisfaction and attract talent. Here’s why ESG is important to employees:
A More Sustainable Workplace
ESG is important for employees because it can help create a safer, healthier and more sustainable workplace. By considering environmental and social factors in decision-making, companies can make choices that benefit both their bottom line and their employees.
Investing in energy-efficient buildings or solar panels, for example, can save money on utility bills while reducing the company's carbon footprint.
Diversity and Inclusion
Additionally, implementing diversity and inclusion policies can create a more positive work environment for all employees. And developing a corporate social responsibility program can engage employees in the community in meaningful ways.
More Than Just Profits
When companies focus on ESG, they make choices that show they care about more than just profits; they care about their people and the planet. That's great news for their employees who are seeking out companies that share their values and are committed to making a positive impact on the world.
How to Create an ESG Strategy for Your Workplace?
An ESG strategy is a plan that helps organizations manage environmental, social, and governance (ESG) risks and opportunities. The goal of an ESG strategy is to create value for the organization by improving its long-term sustainability.
There are many benefits to implementing an ESG strategy in the workplace. For example, it can help organizations:
- avoid or mitigate risks associated with environmental and social issues
- improve their governance practices and make them more sustainable in the long term
- attract and retain talent, as well as build relationships with key stakeholders.
Here’s how to create an ESG strategy for your workplace:
Ensure Engagement At All Levels
Start by working together with your internal stakeholders and asking them for input on which aspects of ESG seem most relevant to your company. Involving them in the development of your strategy will encourage them to support its implementation later on.
Next, tell everyone about your new ESG goals, being as specific as possible about the things you have already decided on. Explain what these goals mean in practice, how they affect employees on a day-to-day basis, why the company is striving for a particular goal, and what it will take to achieve it.
Leaders and managers need to get behind your plan from the beginning and help you work on your chosen goals and formulate new ones over time. By explaining the benefits of your ESG vision, they can get other levels of the organization on board with the new plan. They are an invaluable asset!
Assess Your Current State
Once you have decided on the ESG areas that are most important to your company, you need to figure out where your company stands in relation to those goals. Even if you do not yet have a coherent ESG strategy, you may already have some policies and procedures in place. Take stock of all existing metrics to see how successful your current efforts are and track the progress of your programmes.
Make sure you know who will be affected by your ESG strategy. Employees, customers, investors, suppliers, regulators? Each stakeholder group has different interests and needs that should be considered when developing your plan.
You should also assess the extent to which employees are engaged. If adoption or compliance is low, you should ask yourself why that is. Have you communicated the benefits effectively? If so, you need to figure out what you can do as part of your strategy to increase employee engagement.
Set ESG Goals
The next step is to set specific ESG goals that fit your company, your industry, and the places where you operate, and that will enable you to have the greatest impact.
Determine which environmental and social issues are most relevant to your business and are most important to address in your ESG strategy. If you are unsure, conduct interviews with internal and external stakeholders and record their responses.
The objectives should relate to your business strategy and must be specific enough to be meaningful. The SMART framework will help you set the right goals and show everyone they will lead to tangible and valuable change. Don’t forget to also plan for potential challenges your company may face in achieving the goals.
Establish Key Performance Indicators
Performance indicators are important to ensure that you are achieving your ESG goals in a timely and effective manner. Your strategy should include stages for the path to achieving your goals. Simply aiming for the end result can seem too distant and demoralizing.
However, if you design your ESG strategy to consider the steps along the way to achieving your goals, it will seem more achievable. And remember to celebrate the achievement of each KPI! This will keep you focused and give you a valuable opportunity to document your progress.
This also allows you to report on your progress to internal and external stakeholders. Make sure you do this in a clear and easy-to-understand way. With an issue as important as ESG, investors need to know that you are transparently documenting your processes and results. Do not try to cover up poor performance, but show your strategies for improving it.
ESG Reporting in the Workplace
One criticism of ESG reporting is that it can be difficult to assess ESG performance and accurately compare it to other companies. But if you want to show potential investors your progress in a way that is meaningful to them, using a standardized ESG framework can help you understand the effectiveness of your actions.
Frameworks also provide predefined systems or structures for your ESG goals that allow for easier comparison within the industry. Each has different requirements for what data needs to be reported and there’s no one-size-fits-all approach, but there are some key disclosure areas that should always be covered.
These include: greenhouse gas emissions, water consumption, energy use, waste generation, employee safety, human rights compliance, and community engagement.
Here are the most common frameworks companies use:
- The International Integrated Reporting Council (IIRC) communicates about value creation, preservation and erosion using long-term ESG targets.
- The Sustainability Accounting Standards Board (SASB) tracks ESG performance in 77 different industries and recommends methods for sharing ESG progress with external stakeholders.
- The International Sustainability Standards Board (ISSB) aims to provide a comprehensive global foundation for sustainability-related disclosure standards.
- The Global Reporting Initiative (GRI) provides a framework for universal ESG topics, as well as sector-specific standards for a range of industries.
This type of reporting can also help build trust with stakeholders and create opportunities for dialogue around shared sustainability goals. If you encourage them to make informed decisions about where to allocate their resources, they'll find it easier to trust you.
ESG reporting can also be used by companies to assess their progress and identify areas for improvement. Those that report on their ESG performance tend to be more transparent and knowledgeable about how their operations impact society and the environment.
The Bottom Line: ESG Is Shaping Modern Workplaces
ESG is not a passing trend. More and more investors are interested in companies that are doing their part to solve environmental and social problems and have strong corporate governance.
A recent study found that nearly 80% investors find ESG an important factor in their investment decision-making, and nearly 50% expressed willingness to divest from companies that didn’t take sufficient action on ESG issues.
Investors look at a company's performance in an ESG index or ranking. There are several different indices, but they all use publicly available data on a company's environmental and social performance and assign it a score. These scores are then used to compare companies with each other.
If you are looking for ways to improve your ESG outlook and are committed to working with purpose-driven companies, YAROOMS can help you become more sustainable and reduce carbon emissions, waste, or energy and water consumption.
We offer modern and easy-to-use workplace technology to achieve success in the era of hybrid work, and look forward to telling you more about what we are doing to help the planet. Let’s talk sustainability!