Breaking Down the Shifting Landscape of ESG

Companies of all shapes and sizes find themselves under mounting pressure to adapt to the shifting landscape of social and environmental impact. Regardless of age, industry and size, corporations are being pushed towards increased accountability for a sustainable future. The way most companies discuss this new realm is under the framework of ESG. ESG has become the recognizable buzz acronym for social impact in the business world. But how well do we really know what these three letters represent?

In order to move forward, the first step is to find a way for stakeholders in this space to communicate their collective growth. For this reason, we must peel back the layers of each letter and uncover the world of ESG.

Starting with the breakdown of the acronym itself, ESG stands for Environmental, Social, Governance. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how the company manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company‚Äôs leadership, executive pay, audits, internal controls, and shareholder rights.

The consideration of ESG is a way for a company to demonstrate it has diligently weighed all pertinent risks and opportunities in running its business. If a company operates with high consideration of ESG, its values should be most aligned with the values of society. This means prioritizing stakeholders in its business model along with the Sustainable Development Goals agenda. From this, we get the term stakeholder capitalism.

One of the biggest challenges with the ESG framework is the broad and flexible scope to which it applies. As the acronym attempts to encompass every risk a corporation may face and their varying priorities, it can come off as ill-defined.

One way the industry is currently attempting to bring more value back to ESG is by setting out a clear path with a common set of definitions for what we collectively understand it to mean. With the correct integration, this will allow companies to be compared and judged against one another creating real change, accountability, and bringing impact back to ESG. In order to reach this goal, businesses must prioritize the collection of data to bring the metrics to life.

Leaders in this space who are making powerful strides to bring this to fruition include the World Economic Forum, Bank of America, Deloitte, EY, KPMG and PwC, who have collectively developed a set of Common Metrics. These metrics provide companies with the management framework needed to spearhead a new era of business leadership that creates long-term value for shareholders and societies, while tracking their contributions to the UN Sustainable Development Goals. You can learn more about the Common Metrics in the report published by the World Economic Forum here: Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation