What is ESG?

Environmental, Social and Governance (ESG) Practices

What is ESG?

Environmental, Social and Governance (ESG) refers to a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts. ESG is a set of criteria that investors use to evaluate companies and investment opportunities based on their environmental, social and governance practices.

Why ESG?

Global issues that the world is facing include climate change, the shift from a linear to a circular economy, rising inequality and striking a balance between the requirements of society and the economy. Companies are under increasing pressure from investors, regulators, consumers and employees to be effective stewards of not just capital but also natural and social capital as well as having the appropriate governance framework. As more and more investors include environmental, social and governance (ESG) factors in their investment decision-making, ESG is increasingly becoming significant from the standpoint of obtaining debt and equity funding. ESG helps identify and manage risks, improve social responsibility, enhance long-term sustainability, meet stakeholder expectations, navigate and comply with regulations, and improve access to capital.

Pillars of ESG

ESG is based on Environment, Social and Governance pillars.

Environment Pillar

This pillar evaluates a company’s efforts to preserve the environment, including efforts to reduce carbon emissions and mitigate climate change, manage pollution and waste generated during production processes, utilize energy and water efficiently, and focus on biodiversity and deforestation. Similarly, companies are expected to be good stewards of resources. They should also report on positive sustainability impacts they might have, which may translate into long-term business advantages. From a reporting perspective, this is the most complex pillar.

Social Pillar

The social pillar of ESG evaluates how a company manages relationships with its employees, suppliers, customers, communities and other stakeholders. This includes the company’s policies, labour practices, human rights issues, customer satisfaction and community engagement.

Governance Pillar

The governance pillar refers to the systems and processes that a company uses to manage its operations to ensure accountability and protect the interests of shareholders. Factors covered under the pillar include shareholder rights, board diversity, compensation for the Chief Executive Officer, and how these factors relate to the company’s sustainability performance. It also covers improper business practices such as corruption and anti-competitive behaviour.

ESG’s Relevance to Companies

ESG standards are increasingly becoming important for investors who want to align potential investments with their values and sustainability goals. Companies that perform well on ESG factors are often seen as more resilient, responsible and better positioned for long-term success. As a result, ESG considerations have become integrated into investment strategies, risk management practices and corporate decision-making processes across various industries. Companies are therefore urged to embrace and show firm commitment to ESG principles in order to remain competitive.

Compiled by the Environmental Science Institute

Scientific and Industrial Research and Development Centre

Contact details:

The Director:

  • +263 8677 009671 (direct line), +263 8677 009663, +263-778860323, 778860324, 778860327
  • +263 772434126
  • esi@sirdc.ac.zw, fmatawa@sirdc.ac.zw

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