Importance of ESG
A lot of changes have taken place in the investment market, as there is a lot of focus today on the environment and human rights. A lot of attention today is being given to environmental conservation, and this is why investors of today choose companies that take measures to mitigate the effect they have on the environment. Other issues taking the forefront in investors’ minds are gender equality, employee welfare, and fair compensation. Today, non-financial factors are given equal weight as financial factors. Firms should, therefore, take charge and try to make their impact on the world positive. For a company to be successful today, it has to pay attention to ESG issues. ESG stands for environmental, social, and governance issues. ESG, though vital, is not given a lot of attention by executives today since many of them do not understand what it is all about, and why it is so important to a company. The evolution of social norms makes ESG vital in every company. In this article, we will be looking at some of the reasons why ESG knowledge is vital in today’s business world.
The first aspect of ESG is environmental. This is an important factor because many companies do not realize that their actions harm the environment. Companies today need to clean up after themselves to conserve the environment.
The second issue has to do with social factors. Social risks need to be mitigated if a firm wants to be in operation for a long time. Social concerns include health and safety measures at the workplace, leadership techniques, labor relations, and gender equality.
Governance is the third pillar of ESG. Governance concerns itself with the running of a company. Issues such as executive compensation and bonuses to employees’ compensation and bonuses need to be looked into.
Firstly, ESG compliance can reduce your cost of capital. There is a common misconception that ESG compliance is expensive, and people need to understand that this is not the case. If you comply with the spirit of ESG, then you will see a reduction in your cost of borrowing, which is important if you want to see a difference in our books of account.
ESG knowledge is also vital for a firm because it adds on to its human capital. This is because ESG has to do with factors such as employee welfare and gender equality. The way you treat your employees will determine how they treat your company in return. Companies that invest in their employees’ welfare perform better than those that do not because employees who are treated well are more motivated towards accomplishing company objectives than those that are not.