What is ESG – Environmental, Social, and Corporate Governance?
As per WIKI “Environmental, Social, and Corporate Governance (ESG) is an evaluation of a firm’s collective conscientiousness for social and environmental factors.
It is typically a score that is compiled from data collected surrounding specific metrics related to intangible assets within the enterprise.
It could be considered a form of corporate social credit score. Research shows that such intangible assets comprise an increasing percentage of future enterprise value
“Environmental, Social, and Governance (ESG) initiatives have gained traction across the globe in recent years, driven by major investors and stakeholders.
ESG (Environment, Social, and Governance) concept, as an indicator evaluating companies based on their sustainability impacts in these three areas, has now become more prominent in the context of this digital revolution.
As a result of this in public profile and society in general, companies have been under constant pressure to develop their products and services in unprecedented ways.
What is ESG?
ESG is an acronym for Environmental, Social, and Governance. Companies that exhibit good environmental, social, and governance practices are better poised to work with their communities, find new markets and stay profitable in today’s global economy.
Companies with good ESG practices often invest in the community around them through their practices.
When businesses invest in others, they can not only better understand how they are impacting the world around them; they can also help to create sustainable success for everyone.
An organization’s policies, procedures, and standards are based on environmental, social, and governance (ESG) criteria.
- The Ein ESG, environmental criteria, includes carbon emissions, energy consumption by the company, and waste management.
Criteria relating to environmental stewardship are those that address how a company manages natural resources (e.g., energy, waste, pollution, conservation of natural resources).
- The S, in ESG, social criteria, addresses the relationships your company has and the reputation it maintains with people and institutions in the communities where you do business.
This also includes labor relations and diversity and inclusion. Organizations that follow social criteria consider how they interact with employees, vendors, customers, and communities where they operate.
It also encompasses how a company treats its employees, how it interacts with society & government.
If a company decides to pay its employees well while providing them with good benefits, the employees are more likely to be motivated.
- The G, in ESG, governance, is the internal system of practices, controls, and procedures your company adopts in order to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders.
Every company, which is itself a legal creation, requires governance. A business’s leadership, executive pay, audits, internal controls, and shareholder rights are considered as governance criteria.
Companies with good ESG programs create relationships with national governments, and they pay the correct amount of taxes and royalties.
The connection between Digital Transformation and ESG:
There’s no denying that digital transformation in the business world is a necessity.
There is a connection between Digital Transformation and ESG because digital transformation aims to optimize the execution of processes and make them more efficient, whereas ESG seeks to know specifically what a company’s business is, how it impacts society, and what it needs to do.
Ultimately, adopting technologies capable of improving process execution, improving delivery, and team performance will aid companies in better adapting to the rapid changes in targets and scenarios.
It will also help maintain innovative organizational culture while keeping a broader perspective on their role in society.
Disruptive technologies are increasingly being used across business sectors to revaluate corporate models and create entirely new solutions that shape the way companies do business and measure their ESG impact.
There is a growing convergence between the adoption of digital technologies and their potential to impact ESG priorities.
The most immediate impact is improved data collection, reporting and analysis, which can feed into every aspect of the business.
In addition, finance and treasury organizations are embracing next-generation technology such as cloud infrastructure, robotics for shared service center operations, artificial intelligence (AI), machine learning and blockchain to digitize supply chains, and they are deploying new data and collaboration tools to meet critical goals, such as regulatory compliance, data protection, workforce productivity, etc.
Digital Twin, Smart Building, Smart Factory are some of the manifestations of Digital Transformation, which is aiding in ESG.
All these are using ACID (Artificial Intelligence, Cloud, Internet of Things, Data), to easily monitor materials, external conditions, and maintenance, better enabling companies to improve control and quality measures, and make resource management far more efficient.
DT (and ACID technologies) also helps, to predict and optimize energy consumption, identifying opportunities to minimize waste as well as driving energy-efficient operations.
IoT also plays a big role here. With Piezometers ( to gauge water levels), seismic monitors ( to measure earthquake activity), we can generate geological models for analysis & deliver the essential intelligence to empower decision-makers.
It also helps to provide a cost-effective solution to the collection and reporting of ESG data. Metrics can be measured and collated with precision using IoT sensors, including carbon footprint, energy efficiency, water quality or usage, and waste management.
This helps in ensuring that the collected data collected is accurate and streamlined. Also, it helps track a business’s performance across key environmental, social, and governance factors.
Many companies are beginning to develop an AI-driven model for ESG analysis to create a standardized framework based on appropriate criteria and present the findings in an easy and digestible manner.
From helping to provide transparency over carbon emissions to leveraging satellite images, artificial intelligence also allows companies to collect and analyze more information than ever before when accounting for ESG risks and opportunities
Sectors Under Increased Observation Due to ESG:
Sectors such as mining and resources are in the spotlight when it comes to environmental, social, and governance.
Unlike other industries, such as clothing and food, mining faces special scrutiny due to its vulnerability to environmental, social, and governance issues.
Due to the high risks associated with mining and the potential impact it can bring to local communities, this is not surprising.
Local communities may benefit from mining operations, although they might have both pros and cons. Positively, poor communities can benefit from the development of income.
When the mining operation ceases, many communities are forced to return to poverty, and sometimes even worse. Additionally, some mines may enact conflict and child labor, which could lead to the exploitation and underpayment of workers.
As a result of improved digital transformation strategies, we can streamline the process of tracking, mitigating, and identifying supply chain ESG conflicts, particularly in mining.
Implementation of ESG by Industries:
The decarbonization agenda emerges as an important point of discussion within the ESG agenda presently, especially with COP26 on the horizon.
The world’s attention is focused on the event as parties and organizations work together with the UN Framework Convention on Climate Change.
Greater dialogue and incentive to reduce environmental impacts will result from this, and companies will be encouraged to keep their carbon emissions in check.
They should also strive to decrease the impact of mining on the communities in the countries where they work.
Good ESG programs foster relationships with national governments, and companies who pay taxes and royalties correctly have a good relationship with the government.
As a true embodiment of ESG, companies must take into account both the good and the bad impacts of their activities and how to enhance their alignment with societal needs.
To ensure that mines do not collapse, proper disaster management and prevention are important components of ESG performance.
In addition to safeguarding workers and communities, employers need to make sure they are healthy and safe.
Having the right tools and technology can help companies comply with a growing number of regulations, allowing them to deliver a genuine sustainability and efficiency effort while meeting the ESG standards.
There are some companies that have a history of ESG awareness, and they include but are not limited to Veolia Environment, Hewlett Packard Enterprise, Unilever, FedEx, 3M, and IBM.
In terms of environmental responsibility, these companies have been innovative in their practices.
For example, HP Enterprises has been using recycled plastic for its packaging.
Unilever developed Sunlight, a brand of dishwashing liquid that used much less water than its other brands.
FedEx, is planning to convert its entire 35,000-vehicle fleet to electric or hybrid engines. This has already reduced fuel consumption by more than 50 million gallons.
3M, has saved $2.2 billion since introducing its “pollution prevention pays” (3Ps) program.
It prevents pollution upfront by reformulating products, improving manufacturing processes, redesigning equipment, and recycling and reusing waste from production.
Conclusion: What is ESG Environmental, Social, and Corporate Governance?
ESG stands for Environmental, Social and Governance, and is a part of a company’s social responsibility.
An ESG assessment examines a company’s economic, environmental, and social performance on a yearly basis.
ESG is not just an environmental issue anymore.
ESG is a way to analyze a company’s interactions with the environment, society, and the government.
ESG is a set of principles and guidelines to help organizations manage their environmental and social risks and opportunities.
ESG should integrate into the company’s overall strategy and risk management.
If organizations don’t make changes to how they invest and do business, they risk not meeting their financial and social goals in the future.
