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Table of Contents
ESG defined:
Not long ago, ESG was just a buzzword, investors looked at it as a ‘good to have’. Not anymore. ESG is Environmental, Social and Governance (Corporate Governance). A growing number of Socially responsible investors are now looking at the ESG factor of their investments and no longer just the classic risk vs. return scenarios for future investments.
Younger, millennial investors are reshaping the landscape:
A 2019 survey by Morgan Stanley confirmed that ESG investing is becoming increasingly popular. More than 8 in 10 U.S. individual investors (85%) now express interest in sustainable investing, while half take part in at least one sustainable investing activity. By 2018, $12 trillion worth of investment assets (in the United States alone) were selected based on a socially responsible investing strategy. Morgan Stanley predicts this number is like to expand given the growing percentage of millennials within the larger segment of investors.
ESG components
ESG combines Environmental, Social and Governance factors. Environment includes everything from a company’s attitude towards climate change to the company’s use of renewable energy and how it manages waste. In certain cases it also involves direct environmental impact from a company’s operations such as deforestation or water management. The key area under the Social part of ESG is employee relations. For e.g.: do you pay your employees a fair wage or do you provide employees amenities like a cafeteria or a childcare centre on site. Diversity and inclusion are also under the scanner of many investors. Governance relates to the company’s management and how they respond to the interests of the external stakeholders like consumers and the wider community where your manufacturing facility or Corporate HQ is located. In many cases a strong and vibrant organisational culture improves a company’s ESG evaluation.
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ESG provides direction, clarity — and profits
A new research report from Infosys Knowledge Institute (IKI) reveals that digital adoption alone is no longer enough to meet business objectives and drive profits. The study reveals that companies must now use digital to differentiate beyond traditional IT metrics, reaffirming the importance of people-focused transformation and ESG in achieving business success. “Enterprises are at an inflection point post-pandemic. While some enterprises have seen this as an opportunity to move beyond the questions of whether and how far to digitize, some still haven’t realized the need to use these digital tools to engage their stakeholders more purposefully and respond to calls to serve people, planet, and community.” – Salil Parekh, CEO, Infosys.
The IKI report adds that when companies have high levels of tech adoption and strong ESG commitment, four out of five times (81%), they also use technology most effectively. ESG and technology effectiveness are connected because ESG informs company culture, shapes mindset, and provides a purpose that guides decision-making up and down the line. It’s why in a post-pandemic world technology alone is not a differentiator. It needs to be backed by a strong commitment to people and purpose.
Reach out to us to discuss how you can future proof your company with our structured programs that can help you meet your ESG goals.
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