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ESG

What is ESG

What is Environmental, Social, and Governance (ESG)?

ESG stands for Environmental, Social & Governance. It is a framework that helps the stakeholders to understand and analyse organisations from a broader perspective. 

Instead of solely focusing on capital gains, stakeholders now like to focus on various aspects of an organisation, like how they treat their employees, their commitment to environmental sustainability, and their governance structures.

ESG stands for Environmental, Social, and Governance, and the ESG framework helps stakeholders analyze organizations beyond just profits. Moreover, ESG investing is becoming a popular strategy for investors who want to support companies with strong sustainability and ethical practices.

History Of ESG:

The concept of ESG was first brought up in the mid-2000s, it was mentioned in a United Nations report called ‘Who Cares Wins’. Although we consider that as the first mention, if we go back in time, we can see that we were always focusing on the S and G factors of ESG from mid 20th century, be it raising voices to give equal opportunities, fair wages, sustainable working places to the employees or taking decisions that not only benefit the organisation but the surroundings along the lines.

ESG

These factors were always focused on and worked upon in the past, as for the E i.e., the environmental factor we started focusing on it in the late 20th century, when the concerns regarding melting glaciers, changing climate, and increasing heat on the planet rose so did the environmental responsibilities of the organisations. That’s also when the idea of ESG investing began to attract attention from socially responsible investors.

Environmental Pillar Of ESG:

The environmental pillar of the ESG covers all the aspects and activities of an organisation that can or may affect the environment. Actions such as greenhouse emissions, water, and ground pollution are key factors considered in the environmental pillar.

Companies are increasingly under investigation for their carbon footprint, waste management practices, and resource consumption.

As climate change becomes a critical global issue, stakeholders demand more transparency and accountability from businesses regarding their environmental impact.

Companies integrating ESG principles often implement eco-friendly practices, including energy efficiency, renewable energy adoption, and sustainable resource use.

Adopting the ESG framework can enhance ESG investing decisions by providing clear environmental metrics to evaluate companies.

Social Pillar Of ESG:

The social pillar of ESG includes how a company interacts with its employees, customers, suppliers, and communities. It emphasizes promoting diversity and equality in the workforce, ensuring fair labour practices, and maintaining positive relationships with local communities.

Companies are expected to prioritize employee well-being, provide safe working conditions, and offer opportunities for professional as well as personal development. Stakeholders pay close attention to issues such as labour practices, human rights, and fair pay. ESG investing encourages investors to support companies that perform well in these social criteria.

Governance Pillar Of ESG:

The governance pillar of ESG refers to the systems and processes that help in decision-making in an organization. This includes aspects such as corporate governance structure, board composition, executive compensation, and risk management practices. Companies that follow ESG principles focus on sustainability, social responsibility, and strong governance.

Strong governance practices ensure transparency and accountability within an organization. Companies with strong governance frameworks are well prepared to mitigate risks, prevent conflicts of interest, and ensure compliance with laws and regulations. Investors interested in ESG investing often look closely at governance standards before committing capital. 

Materiality In ESG

Materiality in ESG reporting plays a crucial role in guiding organizations to focus on the most relevant sustainability issues. It recognizes that each industry has its own priorities and challenges, which require tailored approaches to ESG initiatives.

By following the ESG framework, organizations can identify key areas for sustainability improvement and risk mitigation.

Understanding materiality involves identifying the environmental, social, and governance issues that have the greatest potential to impact a company’s financial performance.

For example, In the retail industry, ESG considerations may be different than other sectors like energy or finance. For example, while greenhouse gas emissions might not be as significant for a retail company as they are for an energy company, issues related to supply chain ethics and labour practices can be a priority. These differences in what matters to a particular sector from an ESG perspective are called materiality. 

Companies generally report on the issues that are material to them. Generally, materiality is considered based on what ESG issue is supposed to be financially material in a given industry. 

Financially material issues are those that can impact a company’s financial performance for example, for a retail company, ensuring fair labour practices within its supply chain, such as fair wages, safe working conditions, and the absence of child labour, product sourcing, including the use of sustainable materials and responsible sourcing practices, could be considered financially material issues.

Understanding the material ESG issues helps companies do better in ESG, lower risks, and gain trust from stakeholders. By considering what’s important, companies can:

  • Match their sustainability plans with their business and what stakeholders want.
  • Concentrate on the most important sustainability problems and give enough resources to solve them.
  • Improve how they communicate to earn trust and show they’re clear with stakeholders.
  • Prove they’re leading and serious about sustainability and ESG.
  • Do better in ESG and sharing information.

Stakeholder engagement is key to determining materiality, as it allows companies to gather insights from investors, customers, employees, and the community. This process helps organizations prioritize issues that are most relevant to their stakeholders and identify opportunities for positive impact. 

Understanding and implementing the ESG framework can enhance transparency, accountability, and long-term business growth. ESG principles guide businesses in reducing environmental impact and promoting ethical practices.

Different frameworks, such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), offer approaches to defining materiality in ESG reporting

While these frameworks may vary in their emphasis, they all underscore the importance of considering both stakeholder perspectives and financial implications when assessing materiality.

How Can Koshish India Support Your ESG Planning?

At Koshish India, our skilled team, including multiple experts from IIT Delhi with over 15 years of experience, provides organisations with overall ESG consultancy services, which include ESG reporting, ESG assessment, ESG strategizing services, carbon accounting, and GHG emission calculation services. 

If you’re uncertain about ESG reporting, we offer guidance to help you align your efforts towards sustainability with the expectations of stakeholders. Reach out to us for guidance!

Final Thoughts

In today’s world, businesses are expected to go beyond profits and take responsibility for their environmental, social, and governance (ESG) impacts. ESG builds trust, reduces risks, and helps companies align with global sustainability goals.

With proper ESG planning, organizations can manage their resources better, support their people, and stay accountable to stakeholders.

Adopting an ESG framework allows businesses to communicate their commitment to stakeholders more effectively.

At Koshish, we’re here to guide businesses at every step of their ESG journey, from reporting to carbon reporting, helping them grow responsibly while making a positive difference.

 

Frequently Asked Questions (FAQs)

 

Question: What does ESG stand for?

Answer: ESG stands for Environmental, Social, and Governance. It is a framework used to analyse a company’s environmental impact, social responsibility, and governance practices.

Question: Why is ESG important for businesses?

Answer: ESG helps businesses go beyond profits by promoting sustainability, ethical practices, and strong governance. It builds stakeholder trust, reduces risks, and aligns companies with global sustainability goals.

Question: What is materiality in ESG?

Answer: Materiality means identifying the most relevant ESG issues that can affect a company’s financial performance and reputation. Different industries have different material ESG concerns.

Question: How can companies benefit from ESG practices?

Answer: Effective ESG practices can reduce risks, attract investors, enhance brand reputation, improve resource efficiency, and contribute to long-term success.

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