ESG stands for Environmental, Social and Governance – and refers to the set of sustainable metrics certain companies disclose publicly.
These three pillars are extremely important because not only do they set the tone and reflect how ethical businesses are, but these factors also guarantee a clean planet Earth for generations to come. The environmental pillar focuses on impacts on the natural world, the social pillar targets overall employee social culture, and the governance pillar concentrates on corporate leadership standards. These sets of non-financial metrics show how green a company truly is.
Companies rely on ESG for a variety of reasons.
This form of alternative data helps businesses identify potential growth opportunities, material risks, and are ideal for figuring out which funds and establishments to invest in. ESG data also attracts more customers and is an excellent source for conducting competitive analysis.
Strong ESG practices can provide a company with many positive benefits. From attracting solid customers to significant cost reductions – to boosting a business's employee productivity and retention rate. A recent study done by Goldman Sachs found that “out of 1,200 global companies, those with strong ESG ratings returned 9% while those without 4-star rankings only saw a 2% return.” Proving when used and integrated properly, ESG can lead to repeatable financial outcomes and outperformance across industries.
But keep in mind poor ESG practices can lead to serious problems. Companies can lose customers, fall behind competitors, generate unnecessary waste, and even incur fines or penalties. If you're genuinely interested in ESG, take the time to incorporate it into your business the right way.
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