What is ESG and why is it important?


ESG stands for Environment, Social, and (Corporate) Governance which defines a set of criteria for the investors to shortlist socially responsible companies. These standards play an important role to define a holistic approach while developing business strategies and accountability reports for all the stakeholders including investors, company employees, society, and the environment.

These matters are connected with each other in any business. ESG has become highly important among investors, regulators, policymakers as well as stakeholders, especially to protect the business from risks in the future.

Environmental represents E in ESG. It exhibits the effect of company operations on the environment such as carbon footprint and hazardous elements causing pollution along with the activities which leave a negative impact on the environment.
Social or S in ESG shows how companies and businesses coordinate with the communities in their region. It also deals with the policies in the companies which are related to human resources and other internal elements.

G in ESG stands for Governance which is associated with internal activities and policies of companies which further leads to productive decision-making and legal compliance.
ESG enhances the growth of companies in the long run and also attracts skilled employees, reduces expenses, and improves trust in the market among the consumers.
The main goal of ESG is to focus on all the issues and concerns related to the environment, social, and governance.

Importance of ESG

Stakeholder capitalism has been experiencing a lot of support along with a long-term impact on the businesses in society. ESG has been marked as a long-term initiative, especially after the effects of the Covid-19 pandemic, hence slightly deviating from companies’ short-term decisions and changes. Risk management, along with financial enhancements and growth is some of the emerging factors which are widely affected by incorporating ESG.

ESG investing has become immensely important for the investors especially after the stability of the prices of ESG companies, excelling more productively in comparison to low ESG rankings. Companies that are more oriented toward ESG are expected to have high returns. Moreover, ESG is equally relevant and important to businesses and companies themselves. It has become very important for companies to become transparent about their ESG efforts and impacts. Companies have also been facing pressure from Government and social bodies to prioritize social and sustainable initiatives to improve their reputation. These efforts result in attracting more potential investors. Read more details visit our blog.