ESG

With the UN’s COP26 kicking off in Glasgow on Monday (1 November), it is likely that the term ‘ESG’ will be heard frequently over the next fortnight and beyond. With that in mind, it feels timely to go back to the basics (or the building blocks) of ESG...

What is ESG?

‘ESG’ stands for Environmental, Social, Governance. It is about looking at an organisation’s long-term impact on all of its stakeholders, not just taking a short-term profit-focused view. Taking ESG into consideration can help to mitigate legal, financial and reputational risks and to create a more sustainable business. There is also increasing evidence of the positive impacts that taking ESG into consideration can have on a business’s profitability and share value.

Is the ‘E’ (Environmental) just about climate change and net zero?

Climate change, carbon emissions and net zero are the major focusses of the E for many organisations, given that we are in a climate emergency and many governments and organisations have set targets of reaching net zero by 2050 or 2060. At Mills & Reeve we have produced a report with the University of Edinburgh on this critical topic, Building Towards Net Zero. However water, waste, pollution, biodiversity, energy and natural resources are just some of the other issues that fall under the E and should be included in any consideration of environmental impacts.

What about the ‘S’ (Social) and ‘G’ (Governance)?

Social includes employment practices, human rights and supply chain issues including Modern Slavery, diversity and inclusion, health and safety (including that of employees and of products), and the community in which an organisation operates. Governance includes corporate governance, ethics and shareholder rights.

E, S and G feel like very disparate elements: how do the fit together?

While E, S and G may feel like very distinct strands, they are all elements that underpin an organisation and its impact. ESG should be considered as part of an organisation’s DNA: they should be looked at holistically to ensure that the three distinct strands align and work together to mitigate risk and increase a business’ sustainability and positive impact on all stakeholders.