What are the ESG pillars?
At its core, ESG is about environmental, social, and governance management. It provides a way for all stakeholders to understand how your organization manages risk and opportunities and how it drives long-term business value in a responsible way.
Environmental
The environmental pillar looks at how your business affects the planet in terms of pollution, waste, and resource use. In addition to monitoring and reducing your carbon emissions, you might monitor water usage, energy consumption, and recycling rates. But the environment also affects your business. The environmental pillar, therefore, encourages you to think about how climate change impacts your operations, supply chain, and overall sustainability.
Social
The social aspect of ESG is all about your company’s impact on people, including employees, customers, shareholders, and the community. That means focusing on diversity, equity, and inclusion, committing to fair labor practices, and introducing measures to promote charity work and community engagement.
Governance
This element looks at how your organization is governed and how you manage your business. It involves understanding and adhering to responsible practices for data protection, cybersecurity, risk, and supply chain management. Transparent and ethical government is at the heart of effective ESG activities, informing and underpinning all aspects of your performance and operations.
Why ESG pillars matter for business?
In today’s climate of uncertainty, ESG is an imperative. Implementing an ESG strategy that encompasses all three ESG pillars will not only help to attract the investment required for growth, it can also help to identify and mitigate potential risks that could impact your organization’s reputation, operations, and profit.
From an environmental perspective, for example, failing to adhere to environmental regulations could result in fines that damage your profits. Or perhaps climate change-related weather events will damage your business. In fact, in the EU, the cost of extreme weather events was over €162 billion between 2021 and 2023.
Far beyond any potential risks, however, failing to address environmental issues often means missing out on opportunities such as the chance to cut waste and shrink costs. For example, by looking at the entire supply chain, from raw material sourcing to product distribution and end-of-life, companies can preserve resources and ultimately save money.
More than that, by harnessing innovation and prioritizing environmentally friendly processes, companies can lead the way in their sector – attracting both customers and investors that value environmental responsibility.
It’s a similar situation for the social pillar. A company with poor social practices might face legal action and reputational damage, however, in an ESG-focused organization, staff are more likely to feel valued through fair wages, mental health initiatives or flexible working arrangements. This positive environment can elevate morale and increase productivity.
And if we think about governance, here too mismanagement can result in a company that is vulnerable to fraud, regulatory violations, and even business failure. Implementing a strong code of conduct and focusing on transparency can improve how your company is run, build trust at all levels, and enhance decision-making in line with ESG principles.
According to research by McKinsey , these factors mean that ESG is directly linked to value creation in five important ways:
- Facilitating top-line growth
- Reducing costs
- Minimizing regulatory and legal interventions
- Increasing employee productivity
- Optimizing investment and capital expenditures
Ultimately, whether the goal is to avoid risk, maximize opportunities, or boost profitability, a company supported by the 3 elements of ESG is stronger and more resilient during times of disruption – whatever the cause.
