What Does ESG Mean?

What is ESG?

Environmental, social, and governance (ESG) refers to a group of business facets that directly impact the outside world around them in the three named sectors. These metrics are used to evaluate company performance beyond just fiscal or financial numbers.

The goal of an ESG strategy is to help an organization stay accountable and conscious of its current and future business decisions. More investors are looking solely to fund organizations with ESG efforts, as certain funds may align closer with businesses with shared values, such as eco-friendly initiatives.

We’ve listed a few strategies below for how organizations may contribute to an ESG strategy:

• Environmental: Provide eco-friendly incentives to employees such as Carbon Savings Accounts, utilize recycled water for building maintenance and plumbing, operate on alternative energy sources
• Social: Implement corporate DEI initiatives, create volunteer opportunities for the community, and establish cultural- and community-based employee resource groups
• Governance: Diversify board composition, implement a strategy for profit sharing, and conduct payment transparency initiatives

The History of ESG

The term ESG was introduced in a 2004 report titled “Who Cares Wins.” This report was written by several different financial institutions by invitation of the United Nations. In the United States, ESG has been adopted throughout the US finance industry specifically to measure the sustainability and societal influence of a company or business.

There are specific organizations designed to analyze entities based on their ESG strategies. For example, MSCI is a New York-based finance organization that developed a full ESG rating agency to help define ESG-related metrics.

The goal of ESG metrics and strategies is to provide investors with clear metrics for how responsible a potential investment in an organization might be. The idea is that a business that is more proactive with ESG-related strategies is more likely to be successful in the short- and long-term.

Why ESG Matters for Businesses

While ESG is still a fairly young business strategy in the grand scheme of things, it’s becoming more of a necessity as organizations and investors are becoming more conscious and connected to the world around them.

Here are a few reasons why your organization should consider adopting some ESG-related business strategies:

• Government regulations: More governments are adopting mandates requiring businesses to disclose ESG practices and standards, making the strategy necessary instead of optional.
• Investor consideration: If your organization is looking for potential investors, more investors are requiring ESG practices as mandatory before funding new ventures.
• Cost-saving opportunities: Implementing ESG strategies can help businesses identify areas where they can reduce costs in areas like energy, waste, management, and social initiatives.
• Reduce risks: ESG practices inherently require performance and documentation results. Doing so can help reduce the amount of risk a business or investor may encounter.

How to Get Started With ESG Strategies

If your organization is looking to implement a new ESG strategy, we’ve outlined a few steps for your organization to take.

Secure commitment from leadership and your team

Implementing an ESG strategy requires buy-in from your entire organization. If your team isn’t aligned with the implementation of your ESG strategy, the process can become convoluted and challenging.

The best way to ensure there’s alignment within your organization is to implement an ESG task force that consists of at minimum three major players in your organization: key leadership (such as a CEO or COO), head of corporate sustainability, and head of human resources. While the composition of this team can change, these are suggestions for who to include in the planning process.

Identify key metrics and frameworks

Before your team even starts developing strategy or implementing initiatives, consider identifying what key metrics your team wants to tackle or what frameworks would be best for your team to implement. For example, your organization may want to consider looking into certain certifications, such as identifying as a B Corp or a 501(c)(3) organization.

Decide what qualifications make the most sense for your business and identify how you want your team to measure success.

Conduct a benchmarking assessment

Once you figure out any certifications or qualifications for your business, conduct a benchmarking assessment so your team can gather key metrics before you make any changes. This creates a baseline for your team to start from so you can begin reporting and tracking your progress.

Set concrete ESG goals

After benchmarking key metrics, now is the time to set the measurable ESG goals you want to achieve. The best way to do this is by using a goal setting framework such as SMART goals. SMART goals are specific, measurable, achievable, realistic, and time-bound. SMART goals help hold your team accountable through deadlines, hard numbers, and continuous tracking.

Here are a few examples of ESG related SMART goals:

• Reduce organization created carbon emissions by 35% in 2024
• Achieve 20% improvement in employee diversity by 2025
• Release first ESG report by the end of Q1 2026

Develop strategy based on goals

Once you have your metrics outlined and your goals set, now is the time to develop the strategy and implement the tactics you’re going to use to achieve those goals. There is no one right way to develop a strategy to hit your ESG goals, but we’ve compiled a few examples of some strategies you could implement.

• Introduce the Carbon Savings Account as an employee benefit to help reduce carbon emissions related to employee commuting and telecommuting.
• Develop employee resource groups to help encourage inclusivity within your workplace.
• Sponsor hiring fairs that target underrepresented individuals to help increase diversity within your workplace.

Implement initiatives, monitor, and repeat

As you implement your initiatives, be sure to monitor your key metrics to see how things are progressing. This can help you gauge whether or not your strategies will help move the needle towards your final goal. If you notice that your metrics are not progressing at a pace that will reach your designated time period, it might be a good opportunity to shift strategies. However, you don’t want to change strategies too soon, or else you might not be able to see if your initial strategy helped in the first place.

Communicate results to stakeholders

As your designated time period comes to a close, this is when you report the results of your efforts to your key stakeholders and to the public. Reporting your results is how your organization stays accountable for ESG-related efforts, and the results are used to determine whether or not you succeeded in achieving your goals.

ESG FAQ

What is ESG in simple terms?

ESG stands for environmental, social, and governance. It’s a type of business strategy that helps to hold organizations accountable in the named three facets to help encourage ethical business practices.

What is the difference between ESG and CSR?

ESG stands for environmental, social, and governance. CSR stands for corporate social responsibility. The difference betweens ESG and CSR relies on measurement. ESG is the measurement of many CSR strategies. CSR strategies are the actual actions taking place to achieve ESG metrics.

Minimize Scope 3 Emissions with Scope Zero

Provide employees with opportunities for financial wellness while minimizing Scope 3 emissions. Schedule a demo to learn how you can measure, reduce, and report Scope 3 work-from-home and commute emissions while reducing spend on sustainability goals.

Schedule a demo