ESG (Environment, Social, Governance) – Investment with Conscious Capitalism

On the Rise…

An increasing number of Venture capital firms have been scouting for companies and using the
non-financial parameters to evaluate a firm’s ability to grow and yield desired returns.
Sustainable Investment has reached a remarkable $30 Trillion this year.

ESG is being viewed as an entry factor to explore new markets and opportunities. A firm that
is aligned towards community goals is always a favorite with people and comes with a ready
market.

Transparency is the core element of ESG, and leading firms have been chasing
environmentalists, strategists, and technical experts to build an effective ESG within their
purview. Investors are increasingly prioritizing safer environments with lesser carbon emissions
and sustainability as Corporate Goals.

ESG is concerned with the impact of various environmental factors on the company and its
performance. Sustainability impacts major decisions of a firm in every function. Investors are
willing to sacrifice monetary returns to achieve better sustainability standards. ESG facilitates
more profits through Cost reductions, productivity boosts, and lesser regulatory hassles.

Why an inclination towards ESG?

This perspective by McKinsey sums it up from a corporate point of view:

Communities: Traders, NGOs, and minorities
● People: Employees and Contractors
● Clients: Enterprises, Individuals
● Regulators: Stock Exchanges, Sector Regulators
● Authorities: Government at the State and Central level
● Industry bodies: Trade Unions, Commerce facilitators
● Financing institutions/individuals: Banks, Insurers, Shareholders.

ESG, CSR (Corporate Social Responsibility), and EHS (Environment, Health, Safety):

Though the objectives of the three initiatives are similar, their regulations are different. CSR is a
voluntary action, and EHS is aligned with safety. ESG is a broader concept with elements of
PRI is in dominance.
From an investor perspective, ESG is being considered a top priority, and VC (Venture
Capitalist) Firms are employing Due Diligence Investment managers for the same.

ESG – How to Start?

An ESG Matrix depicting various practices the firm employed, under three pillars –
Environmental, Social, and Governance, relevant to the company. ESG matrix depends on the
sector your company caters to, and the industry it functions in.

Sustainability reporting with GRI (Global Reporting Initiative) and SASB (Sustainable
Accounting Board Standards) Frameworks. However, the common factors include consumption
of energy, equality and diversity, inclusivity, etc., though the material aspects may vary for
different sectors.

ESG framework has evolved into a source of securing finance – both Equity and Debt. Investors
favor ESG-ready firms, as the financial returns are better.

How to evaluate your firm in the context of ESG?

There are many effective tools to evaluate where your firm is standing in the ESG framework.
While an effective and well-planned ESG brings positive results, an improper ESG could
hamper the aspects of growth.
While Sustainability Reporting serves as an internal tool for evaluation, Morningstar ESG
Screener, (a sister firm of Sustainalytics), S&P Global ESG Screen, As You Sow, and similar
services provide detailed insights on areas of improvement.

The Future

Leading Consultancy firms are now specializing in ESG planning and Due Diligence to assist
investors and industry to formulate viable ESG frameworks and reap benefits. The urgency
erupts from numerous changes taking place globally climate-wise and widening gaps of
inequality. However, the fact that ESG is a complex mechanism for smaller firms as it involves
expert guidance and costs is indisputable.

Eminent educational institutions are offering ESG training for individuals for the concept to gain
momentum, and to enable in-house ESG teams in small businesses.

It is muchly appreciable that leading investors, consumers, and producers are backing this
concept as the topmost priority. ESG education and awareness, if taken in the right direction,
can neutralize many undesirable changes on the planet.

For any questions on the ESG framework, reach out to the author.

The author, Dr. Sailaja, hails from Hyderabad, India, and is a seasoned HR Leader, Guest Speaker, and Sustainable Practices enthusiast