Learn About ESG
The investment market has changed a lot over the years, with investors looking at whether companies respect the environment and human rights before investing. A lot of investors today choose companies that take measures to reduce their impact on the environment. Apart from the environment, investors of today are also concerned about issues to do with employee welfare, fair compensation, and gender equality. Today, non-financial factors are given equal weight as financial factors. This is why companies need to take time and focus on leaving a positive impact on the world as much as they focus on their finances. For a company to be successful today, it has to pay attention to ESG issues. ESG is concerned with 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. Implementing ESG is vital in today’s changing world, as social norms evolve. Discussed in this article are some of the reasons why ESG should be a top priority topic in the business world today.
The first aspect of ESG is environmental. This is an important factor because many companies do not realize that their actions harm the environment. Decisions to protect and clean up the environment need to be made at the strategic level if a firm wants to be progressive.
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. Some of the social issues corporate executives need to pay attention to are leadership techniques, labor relations, health and safety measures, and gender equality.
Thirdly, we have governance. This has to do with how a company is run. Issues such as executive compensation and bonuses to employees’ compensation and bonuses need to be looked into.
One major benefit of ESG is that it makes capital cheaper. A lot of executives today believe that ESG is expensive, but this is not the case. Companies with high ESG scores borrow at a lower rate than those with poor ESG scores, and this is why you find hem performing better.
Companies that take time to understand what ESG entails and implement it also benefit from an increase in their human capital. Factors in ESG such as gender equality and employee welfare are some of the reasons why there is an increase in human capital where ESG is implemented. 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.