While most companies are jumping on the ESG bandwagon, many gaps remain between what companies say and their actions. One of the barriers to real action may be a lack of understanding on how these goals are interrelated. Before your business can craft an effective ESG strategy, it is first necessary to fully understand the relationship between the E, the S, and the G.
The meaning of ESG
The EU defines ESG as follows:
E: Environmental considerations: These might include climate change mitigation and adaptation, as well as the environment more broadly, for instance the preservation of biodiversity, pollution prevention, and the circular economy.
S: Social considerations: This could refer to inequality, inclusiveness, labor relations, investment in human capital and communities, as well as human rights issues.
G: Governance: This refers to both public and private institutions, including management structures, employee relations, and executive remuneration. It plays a fundamental role in ensuring the inclusion of social and environmental considerations in the decision-making process.
The relationship between these goals
In the broad discussion of these goals, social considerations are often the forgotten stepchild. People focus on the environmental concerns and how corporate governance can influence change ors failing to do so. But rarely do people look at the relationship between environmental and social concerns. In fact, more than two-thirds of participants in our IMD webinar indicated they believed there was a positive correlation between environment goals and social objectives. However, the opposite is often true.
Consider the yellow jacket protests in Paris. When carbon taxes were imposed on the French public, it sparked these demonstrations. While the intent was to incentivize people to change their behavior, the burden disproportionately affected low-waged workers who live outside of Paris and rely on their cars to drive in and earn their livelihoods. These problems occur when we do not consider the social impact of environmental incentives, which often present differently for different socioeconomic groups. When you consider people who live from pay check to pay check, or even day to day, the choice between putting food on the table or doing the environmentally correct thing is clear.
So, when you sit down to evaluate your strategy, make sure you consider how your goals for one aspect of ESG may affect the others.
For more on this topic, you can view our recent webinar here.
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