Sustainability, ESG & why they still matter?

Sustainability, nowadays appearing in clothing labels, country pledges and corporate targets, has become the centerpiece for the largest recent polarization of key social, economic & political actors. In broad terms, for a business, sustainability refers to the ethical management of the tradeoffs between socio-environmental issues & financial targets, which in turn originates from the traditional corporate perception that environmentally & socially aligned practices are in conflict with a company’s bottom-line. Regardless, due to the increase in the public awareness around environmental & social issues & with the introduction of the Sustainable Development Goals (SDGs) by the United Nations in 2015, most businesses, especially larger & more powerful ones increased their budgets for Corporate Social Responsibility (CSR), to highlight their commitment to the environment & society. This trend resulted in a larger boom to the sector of corporate sustainability consultants, ESG scoring providers and responsible investments. 

ESG alternatively stands for Environmental, Social and Governance, which was first introduced by the UN Environment Programme Initiative in October 2005, to serve the holistic purpose of assessing & integrating sustainability within an organization. Soon after, ESG and CSR became de facto equivalents and companies were praised on their good efforts & low risk scores. The ESG backlash was quick to follow. CSR was soon understood for what it really was, a rather short-term, unsustainable solution for the negative impact that corporate activity has on the environment & society and the millions of dollars thrown towards good exposure and sustainability labels unreflective of bad supply-chain practices, were in turn labeled as greenwashing. For some, this seemed like the end of corporate ESG, but for most experts and policymakers, this moment marked the opportunity to transform ESG into what it should really do, tangibly assess a corporation’s alignment with positive social & environmental impact. 

Experts are changing the narrative around ESG, arguing it should be about minimizing environmental harm & enhancing social value. Consumers and employees are refusing to buy from or work for companies who do not have good environmental and social policies in place. Poor governance is forcing investors out and resulting in a lack of or more expensive credit options. Regulations are becoming stricter around transparency & proper disclosure, and corporations and investors, in an attempt to meet growing stakeholder demands, tighter regulations & preserve their reputations, have started to look for & work on better sustainability practices. This global switch, from a CSR & good marketing focused approach, towards an impact-aligned ESG integration, while costly and painful for businesses in the short-run, has good promises of delivering not only better social value but also higher corporate financial returns in the long-run. Growing research is arguing around the benefits of this new type of capitalism, where profits and social value co-exist & enhance each other. The pioneering social ventures & impact funds are attesting to it, through the realization of  higher profits & better returns. Social-good capitalism has begun and whoever refuses to change, risks losing market share & good employees in the short-term and extinction in the long-run. 

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