What are environmental social and governance strategies guide, House buying tips, Online property purchase advice

What are Environmental Social and Governance Strategies?

3 Sep 2021

The profitability of a given organisation can be difficult to predict. Increasingly, investors are looking to Environmental, Social and Governance (or ESG) factors when making their decisions.

The theory goes that companies which excel according to these metrics stand a much better chance of enjoying success in the long term. Companies which score well when it comes to ESG pose less financial risk, because the practices they employ are likely to be more sustainable. Investors of every stripe are now taking these things seriously, and law firms which specialise in environmental, social and governance factors are all thriving.

What are environmental social and governance strategies?

What’s Covered by ESG?

Let’s take a look at each of the three categories in turn, and what they deal with in practice.

Environmental

These factors seek to assess the company’s impact on the natural world. A company whose premises are not energy efficient, or which creates large amounts of hazardous waste, is unlikely to perform well here.

Social

Social factors assess the business’s impact on the community in which it’s based. Employees, customers and suppliers are all, at the heart of it, human beings. A company which demands that workers spend hours out of every day in dehumanising, unrewarding activities is inherently inferior to one which doesn’t. Moreover, it’s likely to have a more difficult time attracting new talent.

Governance

Finally, we should think about the way that a given organisation is run from the top. This will help investors to work out whether decisions are going to be made in the right way. The pay structure for executives, the rights of shareholders, and the nature and frequency of audits, will all provide reassurance.

Why is ESG worthwhile?

There are, of course, social and moral reasons to favour investments which emphasise ESG concerns over ones which don’t. Given mounting concerns among consumers and voters about all of the issues which ESG touches upon, companies are understandably eager to put across a positive slant on their activities.

This has led to accusations of ‘greenwashing’ at companies which purport to be environmentally sound, but whose activities, upon closer inspection, are actually heavily polluting. Amazon has recently taken great pains to feature positive stories from workers in its marketing material – which demonstrates that big business does, in fact, care about the way that it’s perceived. This might be because of the direct impact it has on consumer behaviour; it might be a longer-term strategy for forestalling government intervention.

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