ESG—short for environmental, social, and governance—encompasses a set of factors that contribute to an organization’s sustainability. These factors are diverse and vary depending on the industry, location, size, and other details specific to each organization. They may include—and are not limited to—topics such as progress on GHG emissions reduction goals, wastewater management and mitigation, workplace health and safety, diversity and inclusion, defining director-level connections with ESG performance, and many more.

• Environmental factors address a company’s stewardship of the environment and focus on topics like waste and pollution, resource use, GHG emissions, deforestation, and climate change.
• Social factors typically describe how a company treats people and focus on topics such as employee relations and diversity, working conditions, local communities, health and safety, and conflict.
• Governance factors look at corporate policies and how a company is governed. This includes tax strategy, executive remuneration, donations and political lobbying, corruption and bribery, and board diversity and structure.

A company’s ESG performance is also tied to its risk profile, overall resilience, and financial outlook. As a result, many investors, customers, and government agencies are asking companies to disclose on ESG data, risks, and opportunities, and reporting is becoming mandatory in countries around the world.

ESG is important for a variety of reasons, from responding to investor pressure and managing financial risks, to reducing costs and waste and improving public relations. Every company contends with ESG issues and neglecting them can significantly increase the risk of experiencing negative incidents or controversies. We’ll look at some of these issues in more detail below.

While social sustainability refers to the people-related components of sustainability—such as fair labor practices and community engagement—social responsibility incorporates a sense of accountability into the discussion. While social sustainability asserts, “The rights and wellbeing of all humans should be protected,” social responsibility asks, “What are companies and other organizations doing to ensure that the rights and wellbeing of all humans are being protected?” With ESG issues more and more in the global spotlight, organizations face continued pressure to adopt more socially sustainable and responsible practices.

Implementing an effective ESG program can improve investor relations in various ways. On a basic level, an ESG program requires good communication with investors to understand their needs and to share your progress. Moreover, investors, especially asset owners and asset management institutions, now expect to see corporate ESG policies and practices across the spectrum of environmental, social, and governance issues.

By putting in place an ESG strategy, companies and their stakeholders can enjoy a range of valuable benefits, including improving investor and public relations, managing risk, reducing costs, and enhancing financial performance. The following questions will look at just a few of the broad benefits of incorporating ESG practice into your business.

For companies, the main purpose of an ESG score or risk rating is to understand their ESG performance baseline. ESG ratings may be used in a number of ways, such as:

• ESG ratings provide transparency to investors regarding how exposed companies are to specific risks, and how well companies are managing them.
• Organizations increasingly rely on ESG scores or risk ratings to obtain specialized financing for sustainability programs and projects.
• Businesses use their ESG scores for benchmarking their ESG performance and demonstrating their commitments to stakeholders.
• Fund managers may rely on ratings to include companies in sustainable investment funds.

Effective ESG website can boost ESG performance in several ways. For example, sustainable practices could significantly reduce data transfer usage and limit the cost of communication in your company operation. In the human resources department, companies with good ESG practices can reduce costs by limiting turnover-related expenses and attracting talent from a wider pool of potential employees.

There is no one-size-fits-all approach to showcasing corporate responsibility for key audiences. However, social media will likely be an indispensable tool in your arsenal, as its younger, tech-savvier users drive much of the conversation which shapes the ESG agenda of each sector.