What is ESG?
ESG stands for Environmental, Social, and Governance. ESG is a holistic framework for companies to capture, monitor and measure their practices and activities to ensure they are making positive contributions to the planet, their employees and the communities where they operate. ESG has become a way to attribute non-financial value to a company and also navigate consumer and investor decision-making. ESG metrics can allow businesses to measure their performance in order to be transparent with stakeholders and consumers.
Why should ESG matter to your business?
The push towards ESG comes from global attention from consumers for increased transparency and a positive environmental/social impact delivered through the greater good in a company’s value chain.
Each company should consider taking an approach to ESG that aligns with the nature of their business, the sector in which they operate, the clients they serve and their corporate values.
Your ESG strategy can help increase customer loyalty and positive sentiment towards your company, uncover new opportunities for future growth and help improve talent management and employee retention.
Developing your ESG goals — getting started
Getting started can seem like a daunting task so the first step is to consider the potential actions and influence your company can have under each of the pillars below. If you start with a “bottom-up” approach, focusing on what makes sense for your business and industry sector, you can then think more broadly about how the three pillars work together under an ESG strategy.
1. Environment
Environmental impact concerns how your company performs as a steward of nature. This might include your company’s overall environmental impact and sustainability policies. Your impact includes your direct operations as well as the impact from all parts of your supply chain. Some considerations include recycling practices, materials used during production and manufacturing, shipping efficiencies, greenhouse gas emissions and any renewable energy sources adopted.
2. Social
Social impact concerns how your company manages relationships with employees, suppliers, customers, and your community. Some social governance issues affecting your ESG include:
- Treatment of employees, including fair pay, benefits and protection/prevention from harassment
- Diversity and inclusion in hiring practices vendor sourcing
- Health and safety standards for employees
- Evaluating vendors and suppliers for ethical sourcing
- Investing in sustainable technology
- Customer relations, policies and protections
Giving back to the community that your company is a part of is a key aspect of the social pillar and should align with your company’s mission. For example, RBC supports various communities in the Caribbean through its sponsorship of youth sporting and development initiatives such as youth tennis, the RBC Race for the Kids and Habitat for Humanity.
3. Governance
Governance deals with a company’s leadership, executive compensation, financial audits, and shareholder rights. Under this pillar, you may want to consider the diversity of your management and board of directors as well as the policies and procedures in place to create a more diverse and inclusive workplace. Some companies develop a corporate code of ethics which serves as a “social operating manual” that all employees must adhere to in the workplace.
Developing strong ESG practices is not only good for the climate and society but it may also be good for your business too. Companies with a strong ESG focus may be more adaptive to the competitive market, build a strong corporate brand and promote business growth that is sustainable and contributes to overall social well-being.
While ESG seems broad in scope at first, applying this framework to your business starts with you thinking about how your company can support green practices and contribute to the communities in which you operate.
Learn more about RBC’s ESG 2021 Performance Report
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. The information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
