Understanding ESG: Integration and Sustainable Investment
Sustainability is a word frequently used and whose meaning we, just as often, do not understand the extent. The term encapsulates the protection of our natural environment and human and ecological health while powering innovation that does not compromise our quality of life. There has been an increasing awareness of sustainability as a crucial aspect of investing.
Institutional asset owners highlight that material Environmental, Social and Governance (ESG) can be linked to an organisation’s long-term financial performance. Often conflated or used interchangeably is ESG and “sustainable investing.” Sustainable investing is considered the umbrella concept, and ESG, a set of data tools for identifying and informing our solutions.
What is ESG?
Environmental, Social and Governance (ESG) refers to the three fundamental factors in measuring the sustainability and societal impact of an investment within an organisation.
Environmental (E) – includes climate risks, natural resources scarcity, pollution and waste, and environmental opportunities.
Social (S) – includes labour issues and product liability, and risks.
Governance (G) – includes corporate governance and behaviour.
ENVIRX enables organisations to manage their risk based material environmental impacts in an integrated manner, enabling GRI G4 en standard management and reporting requirements according to the processes defined in the ISO 14001: 2015 standard. ENVIRX uses the same dynamic framework to measure, trend and report on their impact area, i.e. materials, water, energy, biodiversity, effluents and emissions amongst others.
Organisational leaders need to assume a proactive approach to holistically integrate ESG into their organisation, particularly among rapid developments within the space. Understanding ESG issues and the potential impact of ESG factors on both their investment strategy and the overall working environment is a valuable part of good governance.
The growth in Corporate Responsibility (CR) efforts has brought an abundance of questions about how much mainstream investors value the practices of ESG. While there may have been a strong focus on ESG issues for decades, investors have expressed their goal of aligning financial activities with social and environmental objectives, values, or beliefs. This is the conversation of ESG integration – a reference to the inclusion of ESG standards into investment analysis based on the idea that ESG issues propel financial returns.
Additionally, the incorporation of an Integrated Environmental Sustainability System (ENVIRX) can benefit an organisation by increasing its ability to comply with environmental legislation and regulations, proactively managing environmental risks and opportunities, and reducing its sustainability and reporting cycle time.
It may all seem semantical, but in an ever-changing market, it is essential to understand the concept of ESG and those surrounding it and to focus on what matters. Sustainability notes a company’s attempts to improve, while ESG spotlights three particular factors crucial to today’s organisational managers and investors.