Corporate sustainability continues to play a key role in how organizations of tomorrow operate more efficiently. To achieve optimal corporate sustainability, companies reference the “three pillars” of sustainability operations: environmental, social, and governance, often referred to as ESG. These pillars represent different operational parts of an organization and a set of criteria that investors, corporations, and stakeholders use to assess a company’s impact on society and the planet.
Defining ESG
If an organization wants to be more sustainable, it’s important to ensure each portion of ESG is being acknowledged and implemented into day-to-day operations and long-term strategy. Defining each of these sectors is a great place to start understanding corporate sustainability and what it looks like:
Environmental: This relates to a company’s efforts and policies regarding its impact on the external material world. Environmental factors include a company’s carbon footprint, energy efficiency, waste management and adherence to environmental regulations. It reflects how environmentally conscious a company is and what steps it takes to minimize its negative impact on the planet.
Social: This encompasses a company’s interactions with its employees, customers, suppliers, and the communities in which it operates. Social factors include employee relations, diversity and inclusion, labor practices, product safety, and community engagement. A socially responsible company prioritizes the well-being and fair treatment of all stakeholders.
Governance: This pertains to the systems and structures that guide a company’s decision-making processes and overall management. Governance factors include board composition, executive compensation, transparency, ethics, and anti-corruption measures. Strong governance ensures that a company operates with integrity and accountability.
Why Does ESG Matter?
ESG criteria serve as a framework for evaluating a company’s ethical and sustainable practices. It provides a practical and overarching view of a corporation’s impact on the environment, society, and its internal governance. These metrics go beyond monitoring and tracking short-term performance impacts and help with other key areas of organizational management and long-term growth planning.
Investment Decision-Making
Companies with strong ESG performance may be seen as more attractive investments because they are perceived as better equipped to manage risks and capitalize on opportunities in an evolving market. According to a McKinsey survey about long-horizon equity funds, about 85% of chief investment officers reported that ESG is an important factor in their investment decisions.
Resiliency to Disruptions
By adhering to ESG principles, corporations are better prepared to respond to crises, protect their reputations and avoid potential costly legal and financial setbacks. As the business landscape continues to shift towards a more sustainability-focused path, incorporating ESG principles into an organization means a higher chance of long-term longevity and growth while combating the effects of disruptions.
Regulatory Compliance
Governments and regulatory bodies worldwide are introducing more stringent ESG-related regulations, for example, the SEC requires all public companies to disclose information that may be material to investors, including information on ESG-related risks, and has issued guidance and rules setting forth its disclosure expectations. Companies that proactively integrate ESG principles into their operations are more likely to comply with current and future regulations, avoiding penalties and reputational damage.
The Impact of ESG on Corporations
ESG offers corporations leverage and guidance on how to achieve corporate sustainability and maintain a streamlined, productive corporate growth in the long-term. Taking an ESG approach can help reduce costs and improve an organization’s financial valuation, attracting investors seeking innovative and forward-thinking companies. An ESG focus also means organizations can stay more resilient in times of change in their industry, whether that be from governmental mandates or evolving consumer behaviors.
The expectations of customers and stakeholders have now been updated to include how well an organization is adhering to ESG principles. According to PwC’s 2021 Consumer Intelligence Series survey on ESG, 83% of consumers think companies should be actively shaping ESG best practices and 57% say that companies should be doing more to advance environmental issues (e.g., climate change and water stress). Businesses are also now urged to be more transparent about ESG performance and its impact on the environment, and companies use these reporting metrics to showcase their dedication to sustainability. Most importantly, this new shift has impacted the level of innovation organizations undergo to ensure their products and services are more streamlined and quality-assured while also cutting out operational inefficiencies and costs.
One of the great impacts ESG has had on corporations is the new need to attract customers and talent that align with sustainability values. A demand for sustainability professionals is being fostered and paving the way for potential corporate visionaries to help organizations guide themselves through the dynamically shifting landscapes of tomorrow.
Vanderbilt University Owen Graduate School of Management and University of British Columbia Sauder School of Business have partnered to offer an online certificate program, the Global Certificate in Corporate Sustainability. This program is designed to empower you and members of your organization with skills and knowledge of ESG to help drive organizations in a positive direction.
Learn more about this certificate program and how important ESG is to the future of corporate sustainability by requesting more information or speaking with a program representative at 800.983.6485.