Understanding ESG Environmental Criteria
In today’s evolving business landscape, taking care of the planet isn’t just something nice to do, it’s something businesses need to take seriously. That’s where ESG comes in. ESG stands for Environmental, Social, and Governance, and it’s a way to check how companies are doing when it comes to important practices like looking after the environment, treating people fairly, and running things responsibly.
In this blog, we’ll break down what ESG is and why it matters. We’ll explore the benefits, how it’s reported, and even touch on ESG investing. We’ll also look at how ESG compares to CSR (Corporate Social Responsibility) and take a closer look at the “E” (Environmental) to understand why it’s so important for businesses today.
What is ESG?
ESG is a set of standards, metrics, initiatives/policies used by businesses and investors to access the societal and environmental impact their business has. From a business’s perspective, ESG is a great way to demonstrate to investors, consumers, employees and the wider community that they are acting in the interest of the environment and society. From an investors point of view, ESG is tool that can be used to assess and screen for potential investment risk.
ESG looks at the following areas environment (E), society (S) and governance (G), with each looking at different factors which we have listed below:
|
Environmental Factors |
Social Factors |
Governance Factors |
|
Use of natural resources |
Workplace safety and welfare |
Board composition and diversity |
|
Energy efficiency and usage |
Human rights |
Independence of the board |
|
Waste management |
Diversity |
Right of shareholders |
|
Carbon footprint and greenhouse gas emissions |
Supply chain relationships |
Executive compensation |
|
Water use and pollution |
Child labour |
Corporate ethics |
A Focus On Environmental
The environmental aspect focused on how a business minimises and reduces their impact on the environment.
This is not just in relation to the businesses product(s) or service(s), but also their wider business operations including the supply chain.
ESG allows businesses to identify and target different areas of the organisation where that can implement more sustainable and ethical practices.
Some examples of the environmental practice’s businesses implement include:
- Reducing energy usage
- Procuring energy from renewable sources
- Net zero targets and initiatives
- Developing greener products and/or services
- Switching to sustainable or zero waste products, supplies and packaging
- Reducing carbon emissions through changes such as LED light bulbs
- Encouraging recycling and minimise any waste
Benefits of implementing ESG in your business
Implementing ESG initiatives successfully can lead to range of benefits including:
A competitive advantage: Monitoring ESG criteria and implementing strategies to improve areas of your business which you aren’t meeting the correct standards can lead to a competitive advantage. It’s not just in the consumer market, where research by McKinsey found that over 70% of people said they would be willing to pay 5% more for a green product. Organisations with ESG initiatives in place on average receive 14% higher employee satisfaction scores.
Reduced Costs: Implementing certain initiatives such as ones that either reduce waste or materials used in things like packaging, can lead to reduced costs. When looking at energy specifically, become more energy efficient though things like LED lighting will reduce your energy consumption and therefore lower your energy costs.
Attract Employees: With more people than ever now committed to creating a sustainable future, some potential employees may be looking to work for more eco-conscious companies. But it’s not just being sustainable, ESG encompasses so much more including a diverse inclusive workspace, employee support programs for things like mental well-being and a focus on improved work/life balance.
Secure Investment: Research conducted by Charles Stanley shows that up to half (48%) of investors are looking to increase their ESG investments within the next 3 years.
What is the difference between ESG and CSR?
Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) are both frameworks that aim to address the ethical and sustainable practices of a company. They are often used interchangeably however they do differ in terms of scope, focus and application.
CSR: CSR is made up of a broad range of activities that aims to contribute to societal goals such as volunteering efforts and ethical business practices. The main focus of CSR is ensuring the companies values, and the voluntary initiatives align to create a positive impact on both society and the environment.
ESG: ESG, on the other hand, refers to specific metrics that are used by both investors and stakeholders to evaluate the company’s performance and risk management in relation to environmental, social and governance factors. It is more standardised and data-driven than CSR, focusing on measurable metrics that can influence a company’s financial standing and sustainability.
Importance of ESG
ESG has evolved from being considered a ‘buzzword’ to being a fundamental aspect of a modern business’s strategy. With an emphasis on sustainability, ethical practices and responsible governance, these factors are reshaping the business landscape by reducing costs, improving employee motivation and satisfaction, boosting brand image and potentially opening up new markets.
The global awareness of environment and societal issues is continuing to grow with no signs of slowing down, meaning ESG criteria is becoming more integral to businesses operations and strategies. Alongside this growth in awareness, there is increasing pressure from regulators and consumers for businesses to align themselves with ESG standards. The companies that choose to align themselves stand to gain a competitive advantage over others who are lagging behind.
How Dyce Energy can help your business
As businesses continue to prioritise sustainability, implementing ESG initiatives is no longer just an option – it’s a necessity. Whether you’re looking to reduce your environmental impact, attract eco-conscious customers, or meet investor expectations, focusing on ESG can help future-proof your business.
At Dyce Energy, we’re committed to supporting businesses on their sustainability journey. We offer 100% renewable electricity and carbon-neutral gas, helping you lower your carbon footprint while securing a competitive energy deal. Whether you’re taking your first steps in ESG or looking to enhance your existing strategy, we’re here to help.
