Environmental and Social Governance (ESG) has been a hot topic in business and finance. From banking and investing, to business practices and development policy, ESG is applicable in a variety of contexts. ESG frameworks have been the go-to for companies and institutions looking to improve their metrics on environmental impact, labour practices and governance structures. Though not without controversy or detractors, the holistic approach that ESG offers can be a useful tool for businesses wanting to improve their performance and serve their stakeholders.
ESG frameworks used to assess a company's commitment to sustainable and ethical practices. Much focus has been on the E and S components of ESG, and with good reason: environmental and social criteria hold companies accountable for their commitments to protecting the environment and their labour practices, diversity and inclusion and community engagement. The ‘G’ component is arguably the linchpin of the success of ESG policies. Governance (also corporate governance) is the setting and achieving the company’s goals while considering the social, regulatory, and market contexts. As the Corporate Governance Institute defines it: “(it is) a set of rules, practices, and processes used to direct and control an organisation. It refers to how companies are run and for what purpose. Corporate governance also defines an organisation’s power structure, accountability structure, and decision-making process.”
Adopting ESG practices can have a positive impact for leadership and governance. The four aspects of corporate governance (accounting, transparency, fairness and responsibility) benefit from being combined with stewardship of the environment and stakeholder relations. ESG governance empower shareholders to be more engaged in processes and operations of the business. From a managerial perspective, ESG-influenced corporate governance prioritises management structures that are responsive, well-informed and put ethical practices at the heart of their operations. As ESG frameworks become more popular (thanks in no small part to changing consumer trends), This approach is already paying off: ESG standards have grown by 155% since 2004, and the ESG investing market is said to be worth approximately USD17.2 trillion. A 2023 report from Deloitte, European Investment Bank (EIB), the Global Alliance for Banking on Values (GABV) and KKS Advisors found that commercial banks with good ESG metrics outperformed banks that performed poorly on the same metrics.
As sustainability, social responsibility and ethical leadership become more important for both customers and business owners, the adoption of ESG frameworks and metrics will become more widespread.
At Ghazan Global, an ESG mindset is crucial to how we invest and who we invest in. It will continue to shape our work and mission as we strive to realise a sustainable, equitable future for all.
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