Environmental, Social and Governance (Corporate)
ESG
What is ESG
What is Environmental, Social and Corporate Governance (ESG)?
Short for “environmental, social and governance,” ESG represents a more stakeholder-centric approach to doing business. As ESG increasingly becomes top of mind for directors, it’s essential to consider the global nuances that drive focus region by region.
Companies that adhere to ESG standards agree to conduct themselves ethically in those three areas, and can draw on a range of ESG strategies, tactics and ESG solutions to do so.
But with such a wide range of possible approaches and solutions, and a panoply of issues that fall under the ESG umbrella, where should organizations focus? How should they make a start?
A good first step is to identify the issues fit into the umbrella categories of environmental, social and governance. Those can include:
Environmental
Preservation of our natural world
• Climate change
• Carbon emission reduction
• Water pollution and water scarcity
• Air pollution
• Deforestation
• Greenhouse gas emissions
Social
Consideration of humans and our interdependencies
• Customer success
• Data hygiene and security
• Gender and diversity inclusion
• Community relations
• Mental health
Monitor & Achieve Your ESG Goals
Centralize the data you need to set and surpass your environmental, social and governance (ESG) goals.
• Monitor and act on current and future ESG risks
• Gain clarity on evolving regulations, requirements and liabilities
• Foster collaboration among ESG stakeholders throughout your organization
What is meant by integrated risk management and how is it a business opportunity?
Integrated risk management (IRM) is a set of practices and processes designed to improve corporate decision-making and performance. IRM is designed to provide an integrated view of an organization’s risk management approach, often assisted by supporting technologies, and is an accepted approach to managing corporate risk.
The study found that, after examining idiosyncratic and systematic risk profiles for the companies involved in the study, ESG had an effect on many of those companies’ valuations and performance. Companies with higher ESG ratings showed:
- Higher profitability: ESG companies with high ratings showed abnormal returns and were more competitive. This often led to higher profitability and dividend payments — especially when contrasted against low ESG companies.
- Lower tail risk: High ESG rated companies experienced fewer idiosyncratic risk events like major drawdowns. Companies with low ESG ratings were more likely to experience these incidents.
- Lower systematic risk: High ESG companies had less volatile earnings and less systematic volatility. They also had lower betas and lower costs of capital than low ESG rated companies.
ESG investing can also cut risk in emerging markets. There is research to suggest that companies adhering to ESG principles have a lower chance of tail risk — the risk of unlikely events that lead to catastrophic damage.
ESG Sets a New Standard in Finance and Operations Principles
What once was seen as a less profitable, niche area of investing is moving to the forefront. The rise of green energy, the need to combat climate change, and growing public knowledge of the supply chain are all driving consumers to brands that adopt ESG finance and operations principles. And investors are following suit.
