What is ESG and How Can Businesses Manage It?

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.

What is ESG?

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.

Environmental

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:

• Carbon neutrality/carbon emission reduction
• Paperless communication.
• Renewable energy investment.
• Office/building efficiency, such as eco-friendly LED lighting. 
• Corporate investment in company-wide green initiatives. 
• Vendor management (i.e., ensuring suppliers embrace environmental initiatives).

Social

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:

• Ethical and/or ideal working conditions. 
• Ample employee benefits and fair salary structures. 
• Diversity and inclusion initiatives. 
• Labor and human rights advocacy. 
• Charitable contributions and non-profit collaboration. 
• Vendor management (i.e., ensuring suppliers embrace social factors)
  

Governance

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:

• Legal and regulatory compliance. 
• Corporate values and business ethics. 
• Anti-corruption. 
• Data protection. 
• Transparency. 
• Reporting environmental and social initiatives to stakeholders.

Why is ESG strategy important for businesses?

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:

ESG regulations vary. 

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. 

ESG data is siloed.

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. 

ESG workflows aren’t optimized. 

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 is essential.

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.

Low-code as a corporate ESG solution

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:

• Process discovery. Knowing how to improve ESG workflows means knowing where the room for improvement lies. Low-code platforms with built-in process mining functionality will ensure you target the right processes by identifying roadblocks and bottlenecks in your existing workflows. 
• Seamless application development. ESG impacts all kinds of businesses across all kinds of industries. And each business has its own unique needs. Low-code makes application development easy with no coding knowledge required, so businesses can create apps that serve their specific needs and maximize their benefit.  
  
• Workflow automation. Native automation capabilities like intelligent document processing (IDP), artificial intelligence (AI), machine learning, business rules, and robotic process automation (RPA) eliminate mundane, repetitive tasks so staff can focus on value-driven work. 
  
• Streamlined data. Data accessibility is integral to improving operations. Low-code platforms that are built to be open pull together data from internal and external third-party sources to inform decision making. 
  
• Adaptation. Low-code is uniquely set up to work with and incorporate evolving ESG standards.