Environmental, social, and governance (ESG) is a framework used by businesses, investors, and consumers to determine how conscious an entity is with respect to those three concepts. Consumer awareness paired with an increase in government regulation have shifted businesses’ priorities. For many large corporations, ESG now tops the list.
Today’s consumers want to know where their products and services come from and that the companies behind them operate with ESG factors in mind. Stakeholders of all types have raised the bar in terms of their expectations for hiring practices, responsible investing, corporate behavior, board diversity, commitment to climate change, and beyond.
Generally speaking, ESG refers to corporate-level initiatives to minimize negative impacts on the environment, ensure sound social practices, and comply with regulatory requirements. Businesses are increasingly adopting ESG-friendly practices to meet consumer demand. Eighty-eight percent of publicly traded companies have ESG initiatives in place, followed by 79% of companies backed by private equity and venture capital and 67% of privately owned companies.
Consumers are activating their purchasing power and using it to drive change. Seventy-nine percent of US individual investors and 99% of millennial investors are interested in sustainable investing. Seventy-six percent of consumers say they will stop buying from companies that treat the environment, their employees, or the community in which they operate poorly.
ESG strategy manifests differently at different organizations. Here are some examples of each component of corporate ESG.
The environmental component of ESG management encourages businesses to pay attention to their environmental impact, including the resources they consume, their contribution to pollution levels, and their efforts to combat climate change. Of course, minimizing environmental impact requires financing, so organizations must be able to withstand the financial repercussions of addressing these issues. Here are some examples of ESG management efforts focused on environmental factors:
Social factors account for the way a company manages its relationship with employees, suppliers, customers, and the communities where it operates—and the policies that affect them. Social criteria, while often simple to convey to stakeholders, can be particularly challenging for businesses to manage and track, as it requires a mix of both qualitative and quantitative metrics.
Here are some examples of ESG social factors:
Governance factors focus on organizational business ethics, regulatory compliance, leadership compensation, audits, internal controls, board makeup, and shareholder transparency and rights. Here are some examples of ESG governance factors:
ESG encompasses a rapidly evolving array of behaviors, guidelines, and policies, many with ambitious timetables and detailed reporting requirements. Because consumers have grown more conscious of companies’ social responsibility, businesses need to prioritize ESG to stay competitive and minimize the risk of losing market share. The call for more ESG-friendly practices among corporations can’t be ignored—but are businesses ready to answer it? Corporate ESG is highly complex and impacts deeply rooted business practices. These are some common challenges organizations face when working to implement ESG initiatives:
There is no global standard for ESG, and compliance requirements are often different depending on which region a business is located in. Because regulations affect so many parts of a business, transparent, streamlined processes become crucial for maintaining compliance. The ever-evolving nature of ESG regulations means data inputs for tracking and reporting need to be as clean and easily accessible as possible.
Because ESG has so many moving parts and spans the entire enterprise, it’s no surprise that ESG data is both complicated and plentiful. Making matters worse is the fact that many businesses use decades-old systems to house ESG data, and many of these systems don’t communicate with each other, so data is dispersed and difficult to find.
Updating spreadsheets, maintaining documents, and holding discussions via email may eventually get the job done, but manual processes certainly don’t set a business up for success. Especially as regulations change frequently and organizations need to pivot. Manual ESG processes also hinder auditability, since actions aren't tracked or logged in a standardized location. This approach is not scalable.
Transparency in ESG progress is important for internal and external stakeholders. Data should be visible and easily accessible. Sharing ESG measurements with stakeholders helps support audits, meet governance and compliance, improve ratings, and escalate issues while maintaining data security.
A robust low-code platform enables you to discover gaps and roadblocks in your ESG workflows, design an application to optimize them, flexibly adapt to change, and automate for efficiency. It’s important to remember, though: not all low-code platforms have the same functionality and bring the same level of sophistication to ESG management. Here’s what to look for:
Getting started with improving your corporate ESG operations can seem like quite an undertaking. But low-code simplifies the process and makes environmental and social change more attainable. With streamlined processes for societal good, everybody wins.