ESG is essential for companies to maintain their social license
Recently, the SEC investigated one of the worldʼs largest banks on ESG claims and levied fines on another large financial institution for alleged fraudulent ESG credentials.
How can companies yield results by implementing robust ESG program and conducting periodic ESG assessments? Reduction in costs: investors and promoters of companies are shifting from a mindset that considered ESG implementation as a cost, to ESG as a long-term investment.
While on the flip side, investors during divestment can avoid price chips through ESG reviews, which can detect red flags and provide actionable solutions, turning the company into a better prospect for potential new investors.
Companies can now have a unique arrangement with their financiers where the company can link its ESG rating to interest rates, and be penalised if the set goals are not achieved.
Such an arrangement can work as a motivator for companies to incorporate ESG compliance into their corporate strategy and leaves no place for greenwashing as companies must report the set metrics at regular intervals to the financial institutions.
How can ESG reviews make an impact on the most crucial components of any ESG framework? Efficient energy and water consumption The 17 UN SDGs put a focus on affordable and clean energy as well as clean water and sanitation.
While some ESG mature companies may have already initiated these measures, it is equally critical to track these consumption savings ethically and have a continuous improvement process in place.
ESG quality reviews can help companies to ensure if metrics such as consumption from renewable energy sources, reduction in energy and water consumption, claims of efficient initiatives undertaken are accurate and evident at site.
Implementing policies on areas that are often neglected - including paternity leave, workplace relationships, and gender reporting - can be a good place to start for companies embracing the "S" in ESG. Effective policies and their awareness Governance metrics strongly factor in the level of execution of the set out policies and procedures of a company.
Monitoring ESG risks and metrics Risk management with a focus on ESG ensures that risk areas of a business that may have been overlooked by traditional risk mitigation controls are being addressed.