ESG CRITERIA

ESG stands for Environment, Social and Governance.

These words have been thrown around in business press recently here or here. For once, no sector has been left behind, everyone is expected to catch up with the need.

Essentially ensuring that the business responds to 21st-century expectations of a business that does good or at the very least does not hurt people and the environment. Governance enables the respect of certain criteria as, without it, no business can ensure control of its strategy, supply chain and operations.

This term has especially gained popularity in investments and banking environments. Investors are ready to hold accountable businesses that do not ensure these ESG criteria are met and vote with their dollar by pulling out of these. While one could think that investors are done with “dirty money”, businesses with strong governance and ESG strategies are outperforming others encouraging investors to pour their money there. The shift could also be due to a desire to avoid scandals linked to non-ESG investments from sweatshops to boycotting banks for their backing of fossil fuels, shareholders do not want to be associated with these sectors any longer. Being targetted by pressure groups can cost a lot to restore the image, thus, investors believe that a strategy to avoid these problems will be worth it.

What does good ESG practices look like?

  • Knowing your suppliers’ operations. Get to grip with where they source, who they employ and who works with them (second tier suppliers).
  • Establish a governance system, who do problems get reported to, do you have a safe whisteblower protocol, establish clear policies that can be rippled down to every operation.
  • Follow local rules and regulations
  • Apply the strictest rules and regulations to all your locations (foresee that it will come into regulations in other parts of the world)
  • Track what media says about you. Things change quickly, monitoring frequently your reputation will allow preventive measures before it blows out of proportion
  • Monitor your environmental footprint. Whether you are legally binded to doing that or not, it will ensure you know where your emissions are happening and what changes can be made in your business.
  • Monitor employment conditions in your business and suppliers. Lists of the companies working with sweatshops or Uighur communities are regularly published and you do NOT want to make that list.
  • A certification would be a great way to show customers and suppliers what you care about as well as deep dive into your practices and how to improve them. For instance B corporation, Ecovadis, or any other relevant to your industry.
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