Environmental, social, and governance (ESG) refers to a set of three criteria that investors and analysts use to assess the sustainability and societal impact of companies and investments.

Environmental criteria consider how a company performs in terms of its environmental impact, including its use of natural resources, greenhouse gas emissions, and efforts to reduce pollution and waste.

Social criteria consider how a company performs in terms of its relationships with employees, customers, and the community, including issues such as labor practices, human rights, and diversity and inclusion.

Governance criteria consider how a company is managed and governed, including issues such as leadership, executive pay, and the effectiveness of the company's board of directors.

Society as a whole:

The world is facing a number of global challenges, such as climate change, poverty, and inequality. In 2015, the United Nations adopted the Sustainable Development Goals (SDGs) as a universal call to action to address these issues and create a more sustainable future for all. However, according to a 2022 report, the confluence of crises, including COVID-19, climate change, and conflicts, is putting the 2030 Agenda for Sustainable Development in jeopardy and threatening humanity's very survival:

• The COVID-19 pandemic wiped out more than four years of progress on poverty eradication and pushed 93 million more people into extreme poverty in 2020.

• To stave off the worst climate-related impacts, global greenhouse gas emissions will need to peak before 2025 and then decline by 43 per cent by 2030. Current national commitments point to a nearly 14 per cent increase by 2030 and greater ambitions are needed to meet the 1.5 °C target.

• More than 24 million learners- from pre-primary to university level- are at risk of never returning to school.

It is clear that urgent action is needed to address these challenges and make progress towards the SDGs.

Businesses in particular:

In response to the developments in global threats global ESG regulations are evolving to require private businesses to report on and prevent negative impacts on climate, the environment, and human rights:

• In 2022, the Securities and Exchange Commission (SEC) introduced new ESG disclosure requirements for public companies, including enhanced and standardized climate-related disclosures and additional climate risk disclosures.

• Similarly, the Corporate Sustainability Reporting Directive in Europe has been amended to require companies to publish regular, standardized reports on their environmental and social impact activities starting in fiscal year 2023.

These developments indicate that ESG issues are moving from a mainly voluntary disclosure focus to a more regulatory one, which has significant implications for how ESG information is collected, verified, and acted upon within an organization.

ESG (environmental, social, and governance) practices should not merely be seen as yet another reporting burden, as they can bring significant benefits to businesses. Implementing ESG initiatives can improve financial performance, attract investors and lenders, and strengthen brand identity:

1. Creating competitive advantage: Companies that prioritize ESG can gain a competitive advantage in the market. A GreenPrint survey found that 64% of Americans are willing to pay more for products from companies that promote sustainability.

2. Attracting investors and lenders: Including ESG reporting in earnings reports can attract investors and lenders. A Gallup study found that 48% of investors are interested in sustainable investing funds.

3. Improving financial performance: ESG practices can improve a company's financial performance by reducing energy bills and costs, avoiding fines and penalties, and improving ROI.

4. Building customer loyalty: Socially conscious consumers are increasingly looking for brands that align with their values and treat people well. A survey by Accenture found that 50% of consumers have realigned their priorities when shopping for brands as a result of the COVID-19 pandemic, and are willing to pay extra for brands that reflect their values.

5. Attracting talent: As Millennials and Gen Z become the dominant part of the global workforce, ESG performance will become increasingly important in attracting and retaining top talent. A 2020 study by Marsh & McLennan estimated that by 2029, these generations will make up 72% of the world's workforce. Both Millennials and Gen Z prioritize environmental and social concerns more highly than previous generations, and will expect their employers to prioritize these issues as well.