Environmental, Social, and Governance Criteria – People Care What Corporations Are Doing

Business owners are learning that the general public cares about environmental stewardship and sustainability, how a company interacts with its employees, suppliers, customers, and the community, and what kind of governance it has. This is covered under the catchall term of ESG Criteria (Environmental, Social, and Governance Criteria).

What Are ESG Criteria?

As described by Investopedia, “Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.” 

This video gives us a nice introduction to the idea of ESG Criteria in business. 

Research shows that there are many customers who will pay more for products from a company that is looking after its ESG criteria, and are more likely to invest with a company that is behaving ethically according to these benchmarks. There are indicators that this trend is here to stay.

According to McKinsey.com: 

“ESG can also drive consumer preference. McKinsey research has shown that customers say they are willing to pay to “go green.”…[W]e’ve found that upward of 70 percent of consumers surveyed on purchases in multiple industries, including the automotive, building, electronics, and packaging categories, said they would pay an additional 5 percent for a green product if it met the same performance standards as a nongreen alternative.”

“Global sustainable investment now tops $30 trillion—up 68 percent since 2014 and tenfold since 2004. The acceleration has been driven by heightened social, governmental, and consumer attention on the broader impact of corporations, as well as by the investors and executives who realize that a strong ESG proposition can safeguard a company’s long-term success. The magnitude of investment flow suggests that ESG is much more than a fad or a feel-good exercise.” 

Increasing Your Profitability with ESG

Creating an ESG-positive company can also save you money. Again, per McKinsey.com, “ESG can also reduce costs substantially. Among other advantages, executing ESG effectively can help combat rising operating expenses (such as raw-material costs and the true cost of water or carbon), which McKinsey research has found can affect operating profits by as much as 60 percent. In the same report, our colleagues … found a significant correlation between resource efficiency and financial performance. The study also identified a number of companies across sectors that did particularly well—precisely the companies that had taken their sustainability strategies the furthest.” 

Environmental, Social, and Governance Criteria are a win/win/win situation. Customers feel better about supporting a business that is trying to make a positive difference in the world, investors want to invest in companies like this, and creating these policies is good for your business and the success of your business.

Says smallbusinessbrief.com, “The bottom line is that ESG policy matters to your bottom line. Effective environmental and social governance can appeal to consumers, investors, and lenders.

“That can only help your company grow and be a responsible corporate citizen. The world is watching what you do, and when you have these policies in place, you can easily prove that you care about the world around you.”  

Good accounting practices delivered to your company from an ethical accounting firm are a solid foundation for your company’s ESG. At Shaw & Associates Chartered Accountants, we have earned an award-winning reputation for customer service and we pride ourselves on ethical work.

Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.