While much of the interest around sustainability and social responsibility has centered on larger public companies, private companies are set to make significant contributions to these efforts by integrating Environmental, Social and Governance (ESG) principles. Modern businesses understand that sustainability and social responsibility are no longer niche interests and prioritizing a strong ESG proposition creates opportunity and value.
What Are ESG Criteria?
ESG criteria are a set of non-financial standards for a company’s business that cover a wide range of topics.
“E”: Environmental criteria relate to matters such as sustainability, energy efficiency, water usage, conservation, recycling, biodiversity, pollution reduction and overall impact on the environment. Every company is an energy consumer and its operations affect the environment.
“S”: Social criteria relate to matters such as employee, supplier, customer and other stakeholder relationships, wages and benefits, pay equity, work conditions, privacy and data protection, diversity composition, human rights and community relations. Every company operates in a broader community and can have a positive local influence.
“G”: Governance criteria relate to matters such as leadership diversity, decision making, compliance, management integrity, political activity, investor transparency and strategic oversight. Every company requires internal governance controls and processes.
The particular focus of each company will vary depending on its industry and objectives. And these criteria, while important individually, often gain added consequence due to their overlap.
Why Is ESG Integration Important?
As considerations of market value and social value continue to merge, unrealized ESG capabilities of private companies may drive future value creation. Businesses that proactively adopt ESG principles could benefit from differentiation, enhanced profiles and new opportunities, particularly if those efforts are highlighted to stakeholders and the general public. A meaningful ESG investment could translate to brand enhancement, customer and supplier engagement, talent attraction, operating efficiencies, regulatory preparedness and reduced risk.
Adoption of sustainable and socially responsible strategies reflects a modern understanding of the forces that many believe will shape opportunities and value in the near term. It is this level of understanding that underpins the momentum around ESG integration by private companies. Being uniquely positioned to adopt and implement such strategies, private companies stand to play a key role in positively impacting local communities from an ESG perspective.
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