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Posted on: 

27 March 2024

Jargon Buster – ESG

In the modern world of business and investing, the term 'ESG' has gained significant traction. As expectations increase from stakeholders for social and environmental responsibility, incorporating ESG practices becomes essential for companies to stay on track with changing expectations and ensure lasting success. But what exactly does it mean, and why is it so important? Let's simplify the jargon and clarify the concept of ESG to better understand its importance in today's landscape.
ESG – the basics

ESG stands for Environmental, Social, and Governance. It’s a set of criteria that investors, companies, and stakeholders use to assess a company’s performance, going beyond just financial metrics.

ESG reporting is required for major UK companies that are listed, have more than 500 employees or exceed £500 million in annual turnover. Interestingly, many organisations are voluntarily embracing ESG reporting, even if they’re not obligated to do so. It’s becoming a best practice. While ESG initially grouped these factors together, it’s now evolving into a broader approach that helps organisations in moving towards sustainable operations.

Environment (E)

Let’s start with the ‘E’ – Environmental. Environmental factors focus on a company’s impact on the planet. This includes its carbon footprint, energy efficiency, waste management, water usage, and adherence to environmental regulations. Companies with robust environmental practices prioritise sustainability, conservation, and reducing their ecological footprint.

ESG icon
Social (S)

Next up is the ‘S’ – Social. Social factors revolve around how a company interacts with people, both within and outside the organisation. This encompasses areas such as labour practices, employee relations, diversity and inclusion, community engagement, human rights, and product safety. Organisations with strong social practices foster a positive workplace culture, respect human rights, and contribute positively to society.

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Governance (G)

Last but not least, we have the ‘G’ – Governance. Governance covers the structures and procedures that steer a business’s operations, decision-making, and accountability. It includes aspects such as board diversity, executive compensation, transparency, anti-corruption measures, shareholder rights, and adherence to ethical standards. A strong governance framework ensures integrity, accountability, and responsible leadership within a organisation.

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Beyond green – why ESG is important

ESG encompasses more than just environmental concerns; it’s about operating intelligently and responsibly. Businesses use ESG principles as a strategic tool for proactive risk management. By weaving ESG considerations into their operations, organisations can effectively identify and address various risks, such as regulatory fines, legal issues, damage to reputation and supply chain disruptions.

ESG prioritisation – driving long-term success

Making ESG a priority is strongly tied to long-term success. It helps businesses to thrive by attracting more stakeholders, building better connections with customers and employees, and keeping up with changing market dynamics.

Additionally, with rising expectations from investors, consumers, employees, and regulators for social and environmental accountability, adopting ESG practices becomes essential. This not only boosts brand reputation and trust but also meets the rising call for ethical business conduct.

Sustainable growth

ESG practices play a role in creating value by encouraging innovation, driving cost savings, improving operational efficiency, and discovering new market opportunities. These efforts ultimately benefit shareholders and support sustainable growth. Embracing ESG principles not only enhances business performance but also contributes positively to society and the environment.

Balancing ESG priorities with net zero ambitions

Prioritising ESG principles is crucial while striving for the overarching goal of achieving net zero emissions.

You’ll need a plan to help you on your journey to net zero, initially, it might be something simple like carrying out the quick wins.

So we’ve compiled this customer guide to help you think about what net zero means to your business, breaking down the jargon and highlighting quick wins for carbon reduction.

Further Reading 

Jargon Buster – Biophilic Design

Jargon Buster – Wholesale Market Energy Prices

Jargon Buster – Deciphering Meter Operators (MOPs)


Source: Department for Business Energy & Industrial Strategy Mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs

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