What is an ESG and Why Should You Care?

What is an ESG?

ESG is an increasingly popular type of report that focuses on three core factors:

  • Environment,

  • Social, and 

  • Corporate Governance

These criteria are used to measure the sustainability and societal impact of a company. ESG enables companies to take proactive measures to adopt forward-thinking best practices to change their business structure over time and counter any market turbulence or economic downfalls. It also allows investors to gain insight into a company or business.

ESG planting a tree
Multi-ethnic group of people, cleaning together in public park, saving the environment, disability man helping them.

While ESG reports are currently only mandatory in Europe, they are also required to an extent for multinational U.S.-based companies and carry significance worldwide. There are no downfalls to constructing an ESG report to create transparency that boosts investor confidence and the public's trust. As a company, you are likely collecting this data that makes up an ESG report; the only difference is making that information public. 

If investors know nothing about your corporation, from your environmental impact to how you operate and treat your employees, what gives them the confidence that investing in your business is in their best interest? Investors are aware of your company’s revenue and profit and losses, but what about the context of those numbers? ESG helps fix that by providing the context to investors and painting the complete picture of your company. Public perception also ties in here with how your company is governed and structured. The public has a known distrust towards companies that don't have a public face. Pair that with being a big corporation that isn't necessarily known to be eco-friendly, and you have a recipe for distrust. Investors also don't feel confident in companies that have low worker morale because it affects the overall financial value and reputation of your company.

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It's perfectly fine if a company has issues; no one is perfect. By creating an ESG report, a business takes the initiative to turn things around and, by doing so, creates more impact than just merely compiling a short report. By taking that first step, a business opens the door to the opportunity to new financial gain and garner new investments. People like a company that is transparent and open in reporting its issues and stating what specific measures it will take to overcome them.

The Important Factors of an ESG

Investors want to know what precautions and measures companies are taking to ensure environmental responsibility, structured leadership decisions, treatment of employees, and community involvement. By arming investors with this information, you are giving them the reasons why they should invest in your company.

The important factors to take away from creating an ESG are:

  • Showing sustainable characteristics and company resilience to market turbulence

  • Demonstrating job satisfaction of employees

  • Highlighting the effectiveness of the company's board and leadership

If this captured your interest and you want to move forward with creating an ESG report for your company, download our PDF.

If you want to learn more about ESG and the nitty-gritty of the value it brings to your company, read up on Black Rock's ESG analysis of ESG reporting.

Related: Sustainability: The Future of Investing
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