What are environmental, social and governance (ESG) principles?

Post Summary:

1. A business will need to look beyond profit to be more profitable in the future.

2. Having a sense of purpose, a reason for being will become more important.

3. If you want to attract the very best employees, customers and suppliers you’ll need to be helping their world not just satisfying their needs.
   

What Are ESG Principles?

The world is a different place today than it was not so long ago, perhaps even yesterday, it is changing at a very alarming rate. Think of any sector of society or industry and things are changing fast. Very fast. Everybody is connected up, sharing ideas, thoughts, one great big planetary brain is bring created.

And that includes business. Business is often seen as corrupt or evil, its only interest being itself, its profits, its shareholders, not so much its customers and employees. But that is changing fast too. We’re all too connected now for anything to exist for itself.

You may think these topics are only for investors and big business, but they’re not. Small companies have investors even if it’s just the owner and staff that need to feel they have a sense of purpose too.

So what are the Environmental, Social And Governance, or ESG, principles?

Environmental Principles

Looking after the planet upon which your business operates. For most of us, no all of us, that is still earth. The days of our world of being seen as an unlimited resource for us to plunder are over. Where does your energy come from, or the resources you use to serve your customers? Is the planet being slightly depleted every day you are in business? Consider these things carefully.

Social Principles

The social principles are all to do with you how you treat your staff, your customers, partners and suppliers, anybody who comes into contact with your business. Think of all the things you think you should be doing or would like to do, and you’ve about got it.; paying people on time, recognition, training, coaching, personal development, equal opportunities, being fair and equitable with everyone, this can all help with employee engagement.

Governance Principles

The governance principles are all about the management structure, in the main those of the directors, owners and shareholders. It points towards creating a positive culture with the correct values and fair compensation.

So all this makes perfect sense, there’s not much you can disagree with there. These things aren’t generally considered as they don’t help to improve the bottom line when a business is run like a machine when it is very transactional. These things will start impacting your bottom line when they become essential to your customers, employees and suppliers.

How do companies benefit from ESG principles?

When Marks and Spencer implemented “Plan A” for their customers to have a positive impact on wellbeing, communities and the planet they saved $200M annually. Coca-Cola created a competitive advantage when it reduced the amount of water used with its sustainability approach.

All companies of any size can benefit from thinking about how they can operate more efficiently. Working more efficiently increases productivity and profitability, which becomes a competitive advantage.

Your company’s purpose, values and beliefs should be reflected in all that you do. Just considering ESG principles in your decision making is enough to get started. If your staff follow suit, then you’re on your way, nothing will develop a positive working culture better than a shared sense of purpose.

How investors are integrating ESG principles

Investors will consider these aspects of your business too. They’ll want to see you can make a profit while addressing these ideas, especially when your investors are thinking long term. There is not a single way of integrating ESG into your business. Zurich looks at ESG Integration with training, providing information, reviewing processes and the active involvement of the owners.

B Corp Certification is a significant first step if you’re serious about this.

Is Corporate Social Responsibility (CSR) the same as Environmental, Social And Governance (ESG)?

The term Corporate Social Responsibility has been around for a long time and is vague about what exactly it means. So much so that the term “Green Washing” has come into existence. People generally feel it is only about promoting a brand not doing good.

Summary

None of the above can be argued with; they all make perfect sense. Until today companies have not needed to consider these things, none of these things will help increase your profitability when your business is run like a machine, when it is very transactional.

Today, however, businesses need to be relational. If it matters to people, it matters to your business if you want engaged staff, customers and suppliers with equally high values. That’s what will drive profits into the future.