Since the term Environmental, Social, and Governance (ESG) was coined in 2005, countries, industries, and organizations across the world have been allocating more resources to improve their ESG. According to the McKinsey Sustainability report in August 2022, the rising profile of ESG has been evident in investments, as inflows into sustainable funds rose from $5 billion in 2018 to more than $50 billion in 2020, and then to nearly $70 billion in 2021.
This rise in green investments highlights the increasing importance of ESG in organizations and their efforts towards net zero. However, there have been opponents of ESG, calling it a waste of time, too idealistic, and unachievable. Hence this post will capture the three reasons why ESG still matters, despite all its shortcomings.
1. ESG acts as a model and framework for companies
Externalities come in various forms and from different sources. Externalities such as a company’s greenhouse gas emissions can add to the multitude of other companies that are also polluting the environment. As such, it has become an urgent problem as the world faces more climate-related issues.
Hence, ESG is a tool used by companies to ensure that companies make commitments in the environmental, social, and governmental spheres. This could mean making a commitment to work towards net zero or ensuring company inclusion and minority representation. As workers and consumers start to also prioritize welfare, inclusivity, and environmentally friendly traits in companies, companies in turn feel the pressure to reallocate their resources and operate differently.
Since ESG is an all-rounded framework, it gives organizations a model to emulate and a starting point to begin their journey towards a more sustainable future.
Firstly, the ‘E’ in ‘ESG’ guides companies towards net zero – where they try to reduce the wastage of resources in trying to be more sustainable. At the same time, they can focus on reducing their greenhouse gas emissions through the adoption of new practices or technologies. New technology could include new innovations such as the Non-Fungible Digital Twin (NDFTTM) that MetaVerse Green Exchange has developed. The NDFTTM allows real-time information to be tracked and stored on the blockchain and can be used for various situations, including enabling a more efficient resource allocation.
Secondly, the ‘S’ in ‘ESG’ focuses on the relationships between organizations and their employees as well as the organization’s interactions with the rest of society. Aspects that companies can take into consideration include the company’s health and safety track record and its policies on diversity, equity, and inclusion. In addition, they can also contribute to the larger society, through cooperation with governments or by helping other groups of people in the community.
Lastly, the ‘G’ in ‘ESG’ brings attention to internal systems of practices and procedures in the company in order to make effective decisions that comply with the law. It also encompasses how employees are treated and whether they have a voice and are empowered. Understanding the “G” in ‘ESG’ is essential, as governance plays a big role in how social, political, and cultural attitudes evolve and vice versa.
2. Some companies have successfully proven that following the ESG framework has guided them towards a more sustainable path
There have been numerous companies that have proven that the ESG framework has been successful in guiding them towards a net zero path. These companies have pivoted their business models to ensure that they incorporate sustainability efforts – whether it is through investment in green technology, switching to renewables, or even as simple as keeping track of their carbon emissions.
For example, at MetaVerse Green Exchange, we have been certified by BSI as a carbon-neutral company. To become carbon-neutral, we went through a rigorous process of first calculating our carbon footprint and then employing other various methods to reduce our carbon footprint, such as using cloud-based data centers, which have higher economies of scale, to reduce our energy consumption. Subsequently, we offset the residual carbon footprint with our Carbon Neutrality Tokens (CNT™).
Other companies such as Patagonia, have also integrated ESG elements into their business model. For instance, this includes meeting their electricity needs with renewable energy in all their US outlets.
While there is more work to be done, as no company can truly say they have fulfilled all the pillars of ESG, it is a work in progress and some companies have fared better than others. In addition, more and more companies are coming on board to use the framework as a guide to make a difference and to get ahead of future issues by incorporating sustainability into their business models and demonstrating that they benefit multiple stakeholders and the public.
3. ESG framework provides a hope and glimmer of light for a better future
While the ‘ESG’ is intrinsically difficult to achieve and depicts a situation in a utopian world, there is hope in keeping this acronym as it provides a guide to organizations who are looking to make a difference. In addition, the concept highlights the interconnectivity of different elements that are required for us to mitigate climate change.
As mentioned earlier, investments have shown that ESG and sustainability are becoming priorities for companies, and there is hope that if all organizations make ESG a priority, it would surely accelerate the rate at which we reach our net zero goals. In addition, ‘ESG’ can future-proof organizations as everyone slowly becomes more conscious of the importance of these efforts and ensure that they make a meaningful impact in the long term.
For example, at MetaVerse Green Exchange, we begin our resolve towards ESG by first setting our mission: to make a sustainable and greener future in the metaverse era. As such, the ESG framework provides a starting point for companies to focus on how they can help to ensure the sustainability of the planet, hence providing a glimmer of light for a better future.
In summary, ESG matters, even more so now because the effects of climate change have spread far and wide across the globe. In addition, in order to solve climate issues, it is essential to fix other social and political problems first. As such, ESG provides a starting point for companies to make a difference today!
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