The acronym ESG (Environmental Social Governance) is one of the defining mantras of our times. It pertains to the interconnected worlds of business, government, and civil society. The way companies and other organisations deal with the challenges of E, S, and G — managing the environmental and social impact, as well as how they handle their governance issues — can now be bundled into integrated ESG metrics and ranked by rating agencies.
These assessments have become vital for firms to secure their future by de-risking themselves from external uncertainties, as well as to conform to regulatory requirements. ESG ratings are also becoming necessary to attract discerning investments that are driven by two differing considerations: Ring-fencing the financial prospects of companies from adverse environmental and social impacts, and ensuring on behalf of conscientious investors that their funds flow only to companies that enhance the sum of planetary well-being. Companies are racing to burnish their ESG credentials, particularly those in environmentally depredatory sectors like energy and mining.
This blended concept of ESG is now around two decades old, having been launched in an UN-led report of 2005, titled ‘Who Cares Wins: Connecting Financial Markets to a Changing World’, which enjoined financial institutions, investors, and regulators to work together for promoting sustainable environmental, social, and good governance practices in companies. Today, the ESG approach is.