ESG: Environmental, Social, and Governance

Are you jumping on the ESG bandwagon? 

ESG, or Environmental, Social, and Governance, is all over social media. It seems as if everywhere I look, ESG is mentioned. Business leaders across multiple industries seem to be on or getting on the ESG bandwagon! 

And I must confess, until I started seeing it on LinkedIn, I had no idea what it even is! If you’re anything like me, you think you understand what it means, but could use a bit of help putting it into plain, easily understood language. So, bear with me, as I attempt to do just that.

Simply put, as found in a recent article in The Impact Investor, “ESG is used to measure the ethical and sustainable impact of an investment in a company or business.” It is a risk management tool for investors, allowing them to evaluate how closely a company’s activities and behaviors align with an investor’s values and goals. And though the metrics are self-determined and the reporting is voluntary, many investors are considering the Environmental, Social, and Governance policies of a business, prior to agreeing to make an investment.

As also stated in The Impact Investor, “integrating environmental, social, and governance factors leads to better sustainability, generates positive social impact, and makes good business sense.” So, that explains why ESG is all the rage, it still isn’t clear what ESG is. Obviously, ESG stands for Environmental, Social, and Governance. But what do the three key factors actually mean?

First, the environmental factor focuses on how a company functions as a caretaker of the natural environment, particularly waste and pollution, deforestation, water usage and recycling, and reducing the global temperature by 1.5° Celsius.

The second factor, social, focuses on how a corporation treats people, paying attention to employee relations, diversity, working conditions and conflict management. But it also includes evaluating and reporting a company’s impact on local and underserved communities. 

The final factor is governance, and it looks at how a business creates policies for itself. This factor considers a corporation’s tax strategy, leadership compensation, political lobbying, political donations, and board and leadership diversity. 

According to Market Business News, “the factors are a subset of non-financial performance indicators which include ethical, sustainable and corporate governance issues such as making sure there are systems in place to ensure accountability and managing the corporation’s carbon footprint.”

This leads me to my final thought. At Rise Pittsburgh, we work with all sizes of companies, from startups to Fortune 50s. It seems obvious that larger companies with more resources can and should already be on the ESG bandwagon! They have the bandwidth to focus on voluntarily reporting their policies and procedures and the impact they may have environmentally, socially, and in terms of their governance.

But what about smaller businesses? What can they do? How does ESG work for a start-up? It’s seemingly overwhelming to try to set up policies and procedures when you’re bootstrapping and barely able to make payroll. But it doesn’t have to be. 

Small steps are what’s important. Socially, offer to give your employees one day a year to serve in the community. Next year, make it a quarterly goal. In terms of governance make it a goal to add diversity to your board of directors. Environmentally, maybe this year, you decide to buy everyone a glass coffee mug and stop buying paper cups. Next year, you can work towards reducing the amount of waste you send to the landfill. When you are finally able to move out of your garage, find space in a building that is LEED-certified.  It may take a bit of time but develop a plan of action – small steps to improve as you grow – and track the results. It will be worth it in the long run. Investors are watching!

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