What is ESG, and why should you care?

What is ESG?

ESG stands for Environmental, Social and Governance. Basically it’s a list of key criteria used by investors to evaluate companies that they might want to invest in. In other words, it assesses how your business performs from an environmental perspective, how it approaches social issues, and how your business is governed from the top down.

Crucially, ESG is used by investors to identify companies that could potentially present a higher financial risk moving forward. Now, there’s technically no standardised way of measuring ESG. Instead, companies like Bloomberg and S&P Global provide ESG audits. Each differs in their criteria ever so slightly but there are a few general similarities it’s worth noting. We’ll go into them in just a moment.

It’s not to be confused with Corporate Social Responsibility (CSR) which subtly but significantly different. Basically, CSR is focused on internal company policies, whereas ESG is more of an objective standard used by outside observers (e.g. investors or potential partners). You can find out a little more detail over on our Corporate Social Responsibility page.

So what’s the general criteria?

The ESG guidelines are split into three distinct categories:

Environmental – this assesses your company’s energy use, waste, pollution, natural resource conservation, and treatment of animals. It’s also used to evaluate any environmental risks a company might face and how they manage them.

Social – the social criteria looks at your company’s business relationships. Does your business donate to the local community, or encourage employees to perform volunteer work? Does your company maintain working relations with other businesses that hold similar values to it? Do your company’s working conditions hold health and safety in high regard? And so on.

Governance – investors are very keen to know that a company uses accurate and transparent accounting methods. This is mainly to give them assurances that the company isn’t participating in any illegal activities. This criteria is also there to make sure that your business avoids any potential conflicts of interest between its board members, and that you’re not using any political contributions to obtain unduly favourable treatment.

Why is ESG so important now?

ESG based investments soared in 2020, and they’ve not slowed down since. That’s largely because today’s climate crisis is more pressing than ever – investors, business owners and consumers alike are all increasingly conscious of it, and changing their behaviour accordingly.

This is because sustainability is particularly important to investors, who have to think even further ahead than consumers. In a nutshell – today’s investors want to put their money into companies that they think will make them a profit over a prolonged period of time, which marks a departure from the previously ‘safe’ investments in fossil fuels in decades gone by.

The United Nations is looking to move away from fossil fuel consumption in the years to come, and what they say has massive influence over how people react to the climate crisis. According to a report from the UN Intergovernmental Panel on Climate Change, human influences have played a vital role in contributing to the climate crisis, and some forms of climate disruption are now locked in for centuries. UN Secretary-General Antonio Guterres stated in response that this report must ‘sound a death knell for coal and fossil fuels before they destroy our planet’.

With mounting pressure from UN and the UK government on businesses to move away from fossil fuels, many investors have been deterred from putting their money into companies that don’t adhere to the ESG criteria. That makes them worth prioritising to make sure your business gets the maximum attention from investors, and maximum success in turn!

What are the pros and cons of ESG?

By following ESG criteria, you secure your company’s future as an investable prospect. On the other hand, companies that run exclusively on fossil fuels at the minute will suffer from this shift in agenda so it’s important to try and make changes as soon as possible.

In years gone by, responsible investments had a reputation for requiring some kind of sacrifice on the investors part from a profit perspective. Greener investments weren’t as common place as they are now, as environmental issues weren’t as highly regarded as they are today, so you were unlikely to make a profit on a green company.

But things have changed. Investors now believe that environmental, social, and governance criteria have a practical purpose. By following ESG criteria they’re able to avoid companies whose practices are deemed as a risk factor which could lead to a drop in share prices in the future.

ESG criteria will play an increasingly vital role in determining whether your company is treated as an attractive prospect by potential investors in the coming years. This is where we come in – here at Low Carbon Energy, our commercial solar panels not only provide an excellent way to reduce the cost of your own business energy bills, they also provide the means to meet your own ESG targets, making you much more likely to be picked up by a potential investor.

Our experts have over 30 years of combined experience, having helped SMEs and large corporations across a wide variety of sectors transform their business’ energy supply.
Each of our installations is bespoke, and we tailor your solution on your specific energy profile, helping us to maximise carbon reductions and save you up to thousands of pounds in energy bills.

Feel free to look at our case studies for just a few examples of businesses which have reaped huge rewards from solar, such as Boeing and Irish Water. Feel free to give us a call today on 01282 421 489, and we’ll get started setting you on a greener path!