Has your company created an Environmental, Social, and Corporate Governance (ESG) policy? It’s important as it covers the three critical factors for a business to protect itself, best decide who to partner with or invest in, and how to lessen its impact on society and the environment, which in turn can help a company’s financial future.
Think about the importance of ESG from an investor’s or partnering business’s point of view. Say you’re looking for a supplier for your paper products. You’ve learned that one company you’re considering doesn’t have an environmental policy in place and has been fined in the past. A competitor with similar prices does have a clear policy. Obviously, it’s less risk to you in terms of reputation if you partner with an environmentally-conscious company.
Investors, banks, and your employers are likely all paying close attention to your policies. If you don’t have anything in place, it’s time. According to a study, almost 80% of 10 investors weigh a company’s values, environmental impact, social impact, and compliance with laws and regulations before committing. Learn more about what an ESG policy does and how to create one that suits your business’s needs.
Understanding ESG Criteria
ESG criteria are standards a company uses to decide who to partner with, how to run a business, or what to invest in. It’s a set of standards that can be used to determine a company’s goals and operations in terms of environmental and social impact and governance. Bloomberg reports that between 2013 and 2014, the number of customers using a company’s ESG data to determine how to invest increased by 76%. Take a look at the different criteria and the importance of each.
#1 – Environmental
Environmental criteria detail how a company will work and handle matters that impact the water, soil, and air the company uses or impacts through emissions. The environmental issues covered in company plans should look at waste and wastewater management, air pollution and carbon emissions, and energy efficiency. You should consider how global warming will impact your company months and years from now. What happens if there’s a drought that impacts how much water your business can use?
This is the second most important factor investors look at when deciding where to invest. Half of those participating in a CFA Institute study said environmental criteria were a top consideration.
#2 – Social
Social criteria map out how a company interacts with its employees, clients/customers, suppliers, and community. CFA Institute found that 49% of investors weigh social criteria heavily when making investment decisions.
Social issues cover how satisfied your customers and clients are. How engaged are your employees? Where does your company stand where it comes to gender and diversity, human rights, and labor standards? Do you have measures in place to protect your company’s, clients’, and employees’ privacy?
#3 – Governance
Finally, there is governance that covers executive salaries, rights the shareholders receive, leadership goals, and how bookkeeping and audits are handled. In that same report from CFA Institute, 64% of investors said governance was the most important factor to them when considering investments.
The issues the governance aspects cover include how your company views corruption and bribery. Do you make contributions to politicians or political parties? If you do, will it impact how potential customers, clients, or partners view your business? Do you routinely undergo audits for certifications or to make sure your employees are properly trained? What happens if your company faces sexual harassment, whistleblower, or discrimination complaints?
Steps to Setting Up an ESG Strategy
The ESG strategy you create will be unique to your business. What works for one business will not always fit another company’s needs. You have to remember that you can use another company’s ESG policy to get ideas, but you must customize it to fit your own needs. Start by looking at your values in terms of the environment, social goals, and governance.
Once you have a list of your values and goals, start to weigh what can impact how well you meet those goals. What obstacles stand in your way? If you own a plastics extrusion company with emissions that can pollute the air, do you have a proper air filtration system? How will you get the money together to make sure your filtration system is inspected and maintained to ensure you’re always meeting federal and state emissions regulations?
How will you use those goals and values to measure your company’s success? How do you prove to investors and shareholders that your goals are being met? How do you make sure your employees and distributors share your ideals? Jot down ideas, discuss them with employees and business partners, and come up with a rough draft. You’ll tweak it as you go.
You need to look at your available budget. You might have grand plans for an onsite wastewater plant that allows you to reuse the water you use during your manufacturing processes. You’ll need less water from the public water district and reuse as much as possible. While that’s a great goal, you may not have the funding available yet. It’s a good goal for the future months or years, and you can set aside a percentage of your revenues to that goal.
Budgeting can also help you see where you can make immediate changes to save money. You could replace fluorescent lighting fixtures with energy-efficient LED ones to save money right now. When you do, make sure you recycle the fluorescent fixtures. You may qualify for grant money or rebates by upgrading to energy-efficient fixtures.
Now, go back to your rough draft of the ESG policy and see if there are changes to make yet. You’ll find things often change as you start addressing your goals in different areas. Once you have a firm plan in place, you need to team to make sure that rules and policies are taught to new employees.
You want a strong marketing team to share the key points of your ESG policy with your clients and shareholders. If changes are made in the future, you want to have a team that is on top of sharing changes with the appropriate people. If they get feedback on things investors, banks, and customers/clients don’t like or disagree with, they need to report back to you. Don’t discount those suggestions. See if any are valid enough to incorporate into an updated ESG strategy.
You also need to stay on top of things. Keep up with changing trends, laws, regulations, and the latest technology that can help you meet environmental, social, and governance strategies. Have a team in place to keep researching and sharing possible updates to the policy. Make sure you’re following through when changes are recommended. Don’t just say you’ll look into it and then forget about it. If you don’t have time, hire someone who is authorized to change your ESG policy.
Finding the right company to partner with on environmental responsibility doesn’t have to be difficult. Pay close attention to companies with ESG policies as your own. ERI strives to be environmentally and socially responsible. Our employees and business practices are just as important to us as protecting the environment is. That’s why we hold several ISO certifications as well as R2, eStewards, and NAID AAA.
Trust us with your electronics recycling. When you do, be assured you’re partnering with an e-recycler that processes all electronics in the U.S. We destroy data completely and adhere to federal and local regulations. We refurbish as much as possible so that you get cash for your unused electronics, and we shred and recycle everything that cannot be reused. Call us to learn more about our dedication to being a leader in ITAD.