In recent months ESG related considerations have become the number one on every financial services organisation’s risk register. Traditionally they had been associated with sustainability or corporate responsibility so why are they suddenly so relevant and important?
Environmental, Social and Governance (ESG) is the term used to identify matters that are traditionally associated with sustainability or corporate responsibility – focussing on the impact on the environment and wider society.
These are increasingly focussed on by companies, regulators, investors and other stakeholders in response to the climate crisis and increasing urgency around diversity, inclusion and equality.
Stakeholders are now increasingly evaluating companies beyond short-term profits, with emphasis on. ESG factors have a potential material financial impact on organizations short- and long- term value, so are increasingly important as companies emphasise equitable and inclusive long-term value creation.
When we talk about ESG, we are referring to how institutions use these three factors to evaluate their impact
Why does it matter?
ESG and corporate performance are intrinsically linked. Recent studies have consistently highlighted that firms that perform strongly across all three factors of ESG outperform the market and generate longer-term value.
It matters because it provides stakeholders and investors with the ability to direct their capital to investments that are aligned to sustainable activities and investors own principles and values. ESG reporting is the mechanism to hold institutions accountable for their operations and the driving force for positive change that aligns to frameworks such as the UN Sustainable Development Goals. Businesses that perform strongly across the ESG factors become more resilient to emerging issues and more stable.
Visit our ESG assurance hub, where we walk you through everything you need to know about ESG assurance.