The Environmental aspect is one of the three pillars for companies to access investment fund resources; learn about the importance of preparing for the future.
Funds allocated to ESG investments expect to reach $50 trillion by 2025, representing over one-third of the managed assets worldwide, according to Bloomberg. It is not an exaggeration to say that the concern for ESG is reshaping the industry broadly, including its financing.
This volume of resources demonstrates a clear growth trend. However, it is necessary to understand the concept of ESG.
The acronym stands for Environmental, Social, and Governance. ESG speaks of sustainable development, which considers a higher purpose, such as healthily managing the business with an active focus on people and the planet.
Therefore, one approach to further simplify understanding can be Planet (E), People (S), and Purpose and Principles (G).
Environmental or Planet: The E in ESG is related to caring for planet Earth. It involves initiatives aiming at ecosystem sustainability, biodiversity, conscious water, materials, and soil consumption, and greenhouse gas reduction and offsetting.
Social or People: The S in ESG is primarily connected to how companies treat their employees and, subsequently, their customers, partners, and the community. Topics discussed include health, well-being, safety, human rights, diversity and inclusion, and corporate citizenship.
Governance or Purpose and Principles: The G in ESG refers to management practices aligned with the company’s purpose and principles, considering topics such as transparency, ethics, fair hiring, compliance, and risk management, among others.
Not all companies need to have advanced-level initiatives for all aspects of ESG. However, companies should reflect on which areas have the most affinity within their business context and profile.
For some, it may make more sense to emphasize Governance, such as financial institutions. For others, like a pulp mill, the focus may be on the Environmental aspect. That does not exempt all companies from having initiatives, even if simple, in all three areas.
Environmental: a growing market
While initiatives to reduce carbon emissions may have reputational appeal, focusing on environmental actions has become a requirement from a business sustainability perspective. The reason lies in the volume of resources available to companies that meet the necessary rules of the E in ESG.
ESG assets are in a constant upward spiral: $35 trillion in 2020, $30.6 trillion in 2018, and $22.8 trillion in 2016. That data was obtained from Global Sustainable Investment Association (GSIA).
“This report shows the prevalence of global sustainable investments, which have grown by 15% in the past two years,” the text states. Analyzing the numbers, it is striking how much the carbon market-related area grew between 2016 and 2020: a 605% increase, going from $276 billion to $1.948 billion in four years.
How to do it?
One of the paths that companies can take to find the best way to progress in this area is to follow the Sustainable Development Goals (SDGs) proposed by the United Nations (UN).
The SDGs encompass 17 major objectives to be pursued by 2030, with some being of greater importance from an environmental perspective.
Among them, it is possible to mention: clean water and sanitation; affordable and clean energy; sustainable cities and communities; responsible consumption and production; action against global climate change. As explained in this article on carbon credits, there has been an increase in natural disasters in recent years, reflecting global warming.
For organizations, having this broad vision is relevant because every business emits carbon and produces greenhouse gases (GHGs).
For this reason, many organizations conduct a rigorous assessment of their environmental impact, which can be done through a carbon calculator, reducing or eliminating their consequences for society.
GHGs mix globally in the atmosphere, which means that organizations’ initiatives to mitigate impacts can be implemented anywhere. However, it is common to seek a connection between the adopted strategies and the areas with the greatest impacts, aiming to benefit the most affected communities.
In other words, investing in ESG and well-structured projects ensures that a company avoids reputational issues, is not marginalized, and gains access to resources for its projects in the increasingly larger ESG funds.