Environmental, Social and Corporate Governance (ESG) is a set of non-standardized practices that companies commit to adhere to. The objective is to minimize the risk of investors and society in general, since what is sought is that the company contributes to achieving sustainable economic development.
In other words, what these types of practices seek is for companies to commit to the criteria of sustainable economic development. These practices revolve around three fundamental axes.
In the first place, there is the commitment to the conservation of the environment. Then, the guidance on the well-being of human beings. To, finally, emphasize the administration and management of the company’s work to comply with these practices.
In addition, this is consistent with the ethics that companies are expected to follow to meet their goals. Which must be in harmony with the demands that are being presented in the global economy. The one that increasingly seeks to take more responsible actions to achieve human well-being and environmental conservation.
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Central aspects of environmental, social and corporate governance
It is important to mention that the elements on which the ESG focuses are very important variables that are used to evaluate the performance of the company. But, they are not exactly financial.
The most relevant aspects of ESG focus on the following elements:
To begin with, the environmental aspect refers to everything related to the conservation of the natural environment. Among the most interesting topics and challenges we find:
- Climate change problem.
- Reduction of carbon emissions that damage the ozone layer.
- Difficulty of contamination and scarcity of water.
- Environmental contamination in general due to waste management.
- Deforestation risk.
In the same way, in the social part, the main concern is related to the rights and well-being of human beings and the community. Some of the points of interest are:
- Respect for the human being and his condition of interdependence.
- Customers profit and success.
- Inclusion in terms of gender and diversity.
- Mental health and good social relationship.
- Safety and hygiene conditions at work.
- Information and product security.
3. Corporate governance
Finally, corporate governance refers to the logistics process that the company must follow in its administration. Management should focus on ethical practices that ensure compliance with the rights and responsibilities of the company.
Of course, these practices must be observed during the process of administration and management of all its processes. To fully comply with all its corporate principles. The relevant points are:
- Composition of the board of directors, council and shareholders.
- Worker’s compensation policies.
- Social contribution.
- Comprehensive and appropriate risk management process.
- Application of good practices in the recruitment and incorporation of human resources.
- Appropriate relationship with all stakeholders.
Relationship of sustainable development goals with ESG governance
It is important to mention that the UN (United Nations Organization) in its agenda to achieve sustainable development by 2030, has established 17 objectives.
The sustainable development goals are the following:
- The end of poverty.
- Zero hunger.
- Health & Wellness.
- Quality education.
- Gender equality.
- Clean water and sanitation.
- Affordable and clean energy.
- Decent work and economic growth.
- Industry, innovation and infrastructure.
- Reduction of inequalities.
- Sustainable cities and communities.
- Responsible production and consumption.
- Climate action.
- Submarine life.
- Life of terrestrial ecosystems.
- Peace, justice and solid institutions.
- Alliances to achieve the objectives.
Clearly, it can be observed that an environmental, social and corporate governance is fully related and committed to the achievement of these proposed objectives. Therefore, it becomes a requirement for all responsible companies. Since, all investment strategies must focus and commit to the achievement of sustainable development.
Important Takeaways on Environmental, Social and Corporate Governance
Society is aware of the responsibility that companies have in various fields. Especially, in the protection of the environment, in granting fair treatment to all people and in the implementation of good practices in business management.
This implies that people demand that companies comply with the achievement of these three objectives. Likewise, it is a fundamental criterion in investor decision-making. Investors prefer to invest in companies that fully comply with these requirements. Since, a company that is socially responsible minimizes the risk of the investment.
Consequently, although these criteria cannot be directly evaluated financially, we can affirm that, if these three goals are met, they contribute to improving the financial result of the company.