What Is ESG and Why Is It Important?

‍What Is ESG?

ESG stands for Environment, Social and Governance. The word refers to a method of incorporating environmental, social, and governance goals into a company's fundamental business strategy and operations. As the financial services sector increasingly depends on ESG ratings to impact their investments, ESG has acquired major traction.

Companies that include ESG into their business strategies, according to proponents, are stronger and less hazardous long-term bets. Companies use ESG principles to influence their operations and satisfy their corporate social responsibility objectives in practice.

Environmental examples:

• greenhouse gases, renewable energy, water management, waste management, energy management in manufacturing, landfill diversion, new headquarters building, product energy efficiency, and materials sourcing

Social examples:

• employee health and safety, human rights, community, product lifecycle management, workforce diversity goals, employee development, fair wages and benefits, and collective bargaining

Governance examples:

• gender composition on boards, executive pay linked to sustainability issues and/or diversity, shareholder meetings, directors have risk management expertise, supply chain integrity, ethics, and compliance

Why Is ESG a Big Deal?

Multiple factors play a role in ESG's ascent from buzzword to action item for companies in the electronics industry. One reason why ESG has become a focal point for companies is COVID. The pandemic and its effects have led to a further emphasis on specific ESG issues from investors, including: employee health and safety, diversity and inclusion, and climate change.

Speaking of investors, many investment firms like Bloomberg, BlackRock, and Vanguard have placed a greater emphasis on investing in ESG-heavy portfolios that include companies with good ESG ratings. After all, ESG funds outperformed non-ESG funds in 2020. Money is the motivator. If emphasizing ESG goals makes a company more lucrative, they're going to do so.

In fact, many organizations now require companies to have positive ESG goals in place before they even consider conducting business with them. New ESG ratings continue to emerge from various outlets, making it easier than ever for organizations to assess other companies' progress in ESG pursuits.

What Are ESG Goals?

Cleaner air, happier employees, and a fairer work environment are just a few examples of common ESG goals set by successful enterprises.

As an example, Apple published a 64-page report on its ESG initiatives. A look at some of their ESG goals provides a useful example in identifying what ESG goals are, as a whole.

Environmental:

• Reach carbon neutral across its entire business—including the full life cycle of its products—by 2030.
• To one day make its products using only recycled or renewable materials.

Social:

• Prioritize the health and safety of its teams, customers, supplier employees, and communities.
• Protect people's data
• Hold itself and its suppliers to the highest standards of labor and human rights, health and safety, environmental protection, and ethics.

Government:

• Appropriate monitoring of compliance and performance.
• Apple's Human Rights Policy governs how it treats everyone, including our customers, employees, business partners, and people at every level of its supply chain.
• Conducting business ethically, honestly, and in full compliance with applicable laws and regulations

These goals set by Apple show how companies utilize ESG to promote their own growth and initiatives.