The Importance of a Positive ESG Report

In recent years, consumers have become increasingly interested in the ethics and values behind companies, such as whether or not they support environmental protection, public health, and pressing social issues. In fact, 70 percent of all consumers care about whether or not a business is supporting and speaking out about pressing environmental and social issues. This has sparked a growing interest in companies’ environmental, social, and governance, or “ESG.” So what is ESG and what does this all mean for businesses?

The E, S, and G of ESG 

To fully understand what exactly ESG is, and how it relates to businesses and business practices, let’s first break down each part.

• The “E”: The “E” in ESG stands for the environmental aspects of the business. For instance, does this business care about their greenhouse gas emissions, or whether or not their business practices contribute to deforestation, and even whether or not their productions use too much water. 
• The “S”: The “S” in ESG stands for the social and societal implications of business operations. This could include whether their workers are appropriately paid, whether or not their users’ data is protected, or if their product production is done in a way that protects human rights. 
• The “G”: The “G” in ESG stands for the governance, or regulation, of the environmental and social aspects. For instance, are the business leaders making financial donations or political decisions that promote positive and productive environmental and social matters?

Understanding ESG Scoring

There are ESG research firms that release scores for how a company is doing addressing each element of ESG. These scores range from 0 to 100, with a higher score correlating to a higher commitment to positive ESG practices. To establish these scores, things like evaluating each company’s corporate sustainability measures, annual reports, and worker compensation. Once reported, these scores will be available for different investors to see and access. 

Some of the companies responsible for reporting on ESG include Bloomberg ESG Data Service, MSCI ESG Fundamentals, and Dow Jones Sustainability Indices. While these are all reputable companies, it is important to note that each company uses different metrics for determining ESG scores. Investors will most likely consider scores on multiple different platforms in order to determine the true ethical practices of a company. 

Currently, one of the banks that is leading the world in positive ESG reports is Citi. Citi shared some of its practices that might have helped them receive such a positive score, such as promoting pay equity, addressing the wealth gap amongst races, and tackling aspects of climate change. Additionally, Citi made a commitment to reach net zero greenhouse gas emissions by 2050. Plans like these followed through with actions, will help increase an ESG report. 

With Better ESG Comes Better Benefits  

Once a company reports its ESG data, it becomes available to the general public, such as to its investors and consumers. Assuming that the reports are positive, what’s next? 

• Public Support: The public will appreciate your products and services more if they know your business practices are good, with 88 percent of consumers being more loyal to companies that support social and environmental issues. An example of this is when Bank of America received positive responses after their commitment to donate one billion dollars over the next 4 years to help address economic and racial inequality that had increased during the pandemic.
• Investment Opportunities and Stocks: Investors would rather invest in a company that has strong ethical practices and positive ESG reports because companies with worse ESG reports are seen as less safe and secure investment opportunities. 
• Lasting Relationships: Many companies, and some government agencies, have legal obligations requiring them to only extend contracts and policy agreements with companies that are positively engaging with ESG practices and reporting. This means if your company is not actively working to improve your ESG practices and overall impact on society, you could lose certain business opportunities. 

Public relations and branding have become very interconnected with ESG, and in a lot of ways, maintaining a positive ESG report can help you brand your business to the public as a socially responsible and environmentally friendly company. Once consumers see your business in this positive light, it opens up more opportunities for successfully selling and advertising your products and services. 

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