SpecialFocus

What is ESG?

by Mark Shriver, Curbell Plastics, Inc. and James Kohler, Mitsubishi Chemical Group
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ave you heard about ESG in the news, from investors or at work? Maybe customers are asking you to disclose environmental, sustainability and social data. So, what is all this stuff anyway?

In this article we will explore:

  • What is ESG and its three pillars?
  • Where did the ESG concept originate?
  • What are the potential impacts to my business?
  • Lastly, we will touch on five steps for you to explore and get started on your ESG journey.

What is ESG?

Environmental, social and governance (ESG) is a methodology used to assess an organization’s business practices and performance on various environmental, social, cultural and ethical issues. ESG frameworks help provide a transparent way to eliminate “green washing” and measure business risks and opportunities in those areas. Investors in capital markets across the globe are using this data to grade businesses to help determine their future investment plans. ESG frameworks help drive the investment community that is dependent only on financial impacts to one that evaluates the “sustainable” financial impact.

The three pillars of ESG are Environmental, Social and Governance. Examples of the basic ESG components are broken down into three pillars:

three pillars of ESG: Environmental, Social, and Governance
Where did the ESG concept originate?
ESG origins are linked to a 2004 United Nations global compact report titled Who Cares Wins. This report was endorsed by eighteen major financial institutions from nine different countries with assets totaling over six trillion US dollars. The institutions endorsing this report were convinced that companies who perform better with regards to ESG issues, increase stakeholder and investment value and are necessary players in addressing the growing global concerns surrounding climate change, human rights, worker treatment, business ethics and risk.

In the nearly two decades since the UN publication, shareholders and investors, following public opinion, are driving ESG issues at public companies. Governments worldwide have created laws that address environmental, social and governance issues (Brightest, 2023). Exacerbated by the heightened concerns of climate change and growing social unrest, many countries and businesses are making ESG a part of their strategic initiatives and are referencing the UN’s Sustainable Development Goals (SDG) as guides (SDG, n.d.). For more information on UN’s SDG visit www.un.org

What are the potential impacts to my business?
So far, ESG disclosure has focused on publicly traded companies. However, leaders of private companies are paying close attention. Many of these companies have developed strong leadership in areas of ESG, strengthening their future business position. As most ESG reporting requirements and regulations are aimed at publicly traded companies, private companies are not exempt from public scrutiny. In addition, some of the biggest customers of private companies are often publicly traded. More and more, in order to do business with these publicly traded companies, all business partners are expected to behave in a manner consistent with ESG frameworks.

Participating in this global movement towards ESG just makes sense for both public and private companies. While currently not regulated, private companies are facing growing pressure from customers, regulators and stakeholders to address the many issues associated with the ESG movement.

But ESG shouldn’t be looked at as another “hurdle” to doing business. More and more, publicly traded companies are finding tremendous benefits by integrating these environmental and philanthropical strategies into their business model. They often boast stronger business partnerships, greater access to capital, growing customer loyalty, preferential suppliers for new business, improved branding and an advantage in attracting and retaining top talent.

So, take the first step on your ESG journey using the following guide to map your process:
  1. Define company values and consider each material item important to the environment, society and other key stakeholders.
Repeating cycle of Define company values, Measure, Establish goals, Self-assess, Evaluate & adjust
  1. Measure your ESG components. Worrying about everything is not important, start with a few measurements. The key is to start.
  2. Establish goals after enough time to evaluate the measures. Assign necessary actions to achieve those goals.
  3. Self-assess your company using some common frameworks: Global Reporting Initiative (GRI), Carbon Disclosure Project (CDP) or you may want to try EcoVadis as a platform.
  4. Evaluate & adjust. Take time to continually improve by adding a few more measures, stopping some less effective actions and prioritizing others.
hand holding out planet Earth, and a hand holding out a tree
References
  1. Brightest. (2023, January 27) Key ESG Regulatory Policies, Laws, Rules, and Reporting requirements in 2023. https://www.brightest.io/esg-regulations
  2. Sustainable Development Goals (SDG). (n.d.). Teaching guide and resources: Sustainable Development Goals. United Nations. Retrieved on May 14, 2023. https://sdgs.un.org/goals
Mark Shriver is Curbell Plastics, Inc.’s director of safety and environmental affairs. For more information, contact Curbell Plastics, Inc. at 7 Cobham Drive, Orchard Park, NY 14127-4180 USA; phone (716) 667-3377 or (888) CURBELL, fax (716) 667-3432, customerservice@curbellplastics.com or www.curbellplastics.com.

James Kohler is Mitsubishi Chemical Group’s Americas KAITEKI (sustainability) manager. For more information, contact Mitsubishi Chemical Group at P.O. Box 14235-2120 Fairmont Avenue, Reading, PA 19612-4235 USA,; phone (610) 320-6600 or (800) 366-0310, fax (800) 366-0301, www.mcam.com.

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