The Significance (or otherwise) of ESG in Today’s Business Landscape

The concept of Environmental, Social and Governance (ESG) criteria has become a focal point in the business and investment landscape.?

Previously relegated to the sidelines, today, ESG (even though it has its detractors) stands front and center in decision-making processes for companies, investors and stakeholders alike. At the same time, some commentators and academics are suggesting that ESG gives us too narrow a focus on what really matters.

We’ll come back to that ‘narrow-ness’ in just a moment, but for now, let’s look at some of the key things about where ESG has brought us.?

A Shift from Profit-Only Metrics

Most of us were brought up on a simple version of business success — we learned early on that the success of a business was measured primarily by its financial performance.

Now we’ve grown into understanding and embracing, as a priority, a much more holistic view of success. ESG represents this transition from purely profit-driven metrics to those that factor in the broader impact of a company’s actions.

Because of that, aligning with ESG criteria is no longer just a moral choice; it’s a strategic one. Rather than examining your business as a whole in terms of its contribution to ESG criteria, it's more effective to break it down into manageable segments. This involves integrating the criteria into specific departments like brand and marketing, operations, sales, finance, HR, and more. Companies that have embraced ESG often find themselves better positioned in the market too. They can attract and retain top talent, appeal to a broader range of investors and foster deeper customer loyalty.

B1G1: Elevating the Business Core

B1G1 provides businesses with the technology to intertwine their operations with impactful giving. Instead of making one-time, lump-sum donations, companies can effortlessly integrate impact-creation into their everyday business transactions.

For instance, every product sold, service rendered, or milestone achieved can translate into a positive impact on communities worldwide. Whether it’s planting a tree, providing clean water or offering education, B1G1 makes it so easy to move from ‘words-driven’ to ‘impact-driven’. In effect, it democratizes ESG (everyone on the team is involved as opposed to just the C-Suite) and makes the process more tangible and, most importantly, easy to relate to for everyone — team members, customers and communities.

B1G1 underscores the importance of sustained, meaningful actions. This approach aligns seamlessly with the ethos of a broader ‘more than profit’ focus. It’s not just about one-off actions but consistent commitment to the broader well-being of society and the environment.

And that, in turn, aligns well with the shift to the customer. Consumers now are more informed and increasingly they make purchasing decisions based on a company’s values. Brands that resonate with consumers on these principles enjoy a stronger, more loyal customer base.

Investors and ESG

The investor community too has embraced ESG in their evaluation criteria. Companies with a robust ESG framework can be seen as less risky and more forward-thinking. They can be seen as better prepared for future challenges, from regulatory changes to societal shifts.

There are, though, powerful voices saying focusing on the ‘narrow-ness’ of ESG is problematic. One such voice is author and professor of finance at London Business School, Alex Edmans. In an August 2023 Wall Street Journal no-punches-pulled article titled, “A Progressive’s Case for Getting Rid of ‘ESG’,” he puts it this way:

“(The ESG) term has become heavily politicized. What matters is whether something improves long-term value, rather than whether it’s called ESG. It usefully drew companies’ and investors’ attention to the fact that non-financial factors can be financially material. Let’s free companies to create long-term value.”

In a LinkedIn piece I wrote two years ago, I suggested (not as powerfully as Prof. Edmands, perhaps) that we need to change the meaning of the acronym to Embed Social Good.

And when you do that, all of a sudden the measurement ‘nightmare’ of ESG becomes so much easier. That’s because B1G1 has measurement standards (like the Global Goals) built directly into it so measurement becomes easy.

The on-going ‘debate’ about ESG may continue, but given the existential threats like climate change and growing societal inequalities, ESG’s principles are here to stay. They’re essential for ensuring a sustainable and equitable future.

In a world fraught with environmental and social challenges, those principles provide a roadmap for businesses to make a genuine difference. By adopting these principles, companies can secure their future, ensure long-term profitability and contribute positively to the world.