ESG has become an inescapable topic in business and investing. The subject’s prevalence raises the question, “What is ESG?”
This matter affects business operations and valuations, making it a prime concern for all stakeholders in commercial enterprises. Learn more about the ESG issue and how to make it work for you.
I. What Is ESG in Simple Terms?
The ESG acronym represents “environmental, social, and governance.” These three areas incorporate:
- Environmental: Sustainable use of energy, water, and natural resources, as well as mitigation of negative environmental impacts
- Social: Ethical activity in the local community and the world at large, such as resisting discrimination, supporting employee health and safety, and using humane supply chains
- Governance: Ethical and transparent practices in corporate governance
What does ESG mean for business practices? Companies behave responsibly internally and externally. Such work attracts valuable customers and partners.
What is ESG investing? Considering ESG factors provides a way to make sound investment decisions, so investors look for responsible companies with an ESG focus.
The application of the ESG definition varies among industries and communities. Typically, dealing with environmental issues requires more research, investigation, and science than addressing the social and governance factors.
Understanding the ESG meaning in practice requires more than answering, “What does ESG stand for?” Stakeholders must know common terms, such as:
- Carbon neutrality: When an organization contributes to the removal of at least as much carbon dioxide as it emits
- Net-zero: The aggressive goal of cutting greenhouse gas emissions to a point where they are practically nonexistent
- Greenwashing: When an organization presents deceptive claims about its green or sustainable activities
- Renewable energy: Energy from inexhaustible sources, such as solar, wind, and water
ESG issues arise in discussions about marketing, compliance, financing, and operations. Thus, organizations must prepare to discuss matters credibly.
II. What Are Beneficial ESG Programs?
Greenwashing remains a concern for investors, partners, and customers who pay attention to ESG. All parties need an objective measuring stick to determine real progress. What is an ESG framework able to do to resolve this challenge?
An ESG program can offer building-level ESG ratings to demonstrate a company’s performance with initiatives. Popular standards include the following:
- ENERGY STAR seeks to help consumers and businesses save money and protect the environment through energy-efficient practices and products. A 100-point scoring system shows a company’s efficiency level.
- LEED certifies buildings to create healthier spaces, improve efficiency, lower carbon emissions, and save money. LEED also uses an easy-to-understand 100-point model.
- WELL certifications use seven concepts to address physical and mental health. The WELL v2 Scorecard has 110 points.
Real estate firms and investors also need a framework that gives portfolio-level ESG scores. GRESB has become the gold standard in real estate for measuring portfolio-level ESG. Other portfolio-level frameworks for scoring include CDP, UNPRI, SASB, GRI, and TCFD.
Often a combination of standards and scores work together. An organization must select a mix that meets the needs and preferences of its particular investors and stakeholders.
III. What Is the Role of Environmental Consulting Firms in ESG?
The rapidly evolving ESG field requires expert guidance, just like other aspects of a business. To meet ESG goals, environmental consulting firms are answering the call. What is an ESG consulting firm able to do to help a business?
A core service is helping your organization determine which ESG ratings and standards are best for your situation. Once you discover the correct frameworks, the consulting agency helps you set appropriate goals and find practical and cost-effective ways to implement changes.
When selecting an ESG consultant, you should find a firm with experience in your industry. For example, investors, property owners, managers, and insurance firms with substantial real estate interests need someone with a history in the construction industry.
The consultant also needs investment experience to highlight a decision’s long-term impact. Like any consultancy, clear and open communication is a must.
IV. How Can ESG Integrate Into Business Operations?
Organizations need practical steps to integrate ESG into daily operations. Common elements include:
- Discovering specific ESG threats and drivers
- Aligning ESG goals with the core mission and strategy
- Gathering data and evidence
- Finding partners who can help
- Promoting initiatives for positive public relations
What is an ESG strategy able to do for your organizational culture and practices? By integrating ESG into your operations, you train your team to care about deeper issues that promote organizational longevity.
Numerous case studies demonstrate that companies can feasibly integrate ESG into operations. For instance, Brookfield Properties spent nearly a decade on ESG initiatives with a beneficial return on investment. In one case, a shopping center showed a return of over 14% from ESG efforts.
Another case study of a building in New York City saw retrofitting lead to cost savings and an increased valuation due to reduced costs. Clearly, a focus on ESG reaps continual benefits.
V. What Are Current ESG Challenges and Opportunities?
Adopting ESG involves hurdling various challenges. Regulations change, and the market swings rapidly. Understanding risks, collecting data, and getting full buy-in from a team are other obstacles.
The solutions lie in demonstrating the practical value of adopting ESG to all vested parties. Gaining buy-in demands supplying adequate training or education to stakeholders. Companies must then find ways to embed ESG strategies into existing practices and procedures instead of treating these strategies as a side project.
Most companies don’t have the experts in-house to coordinate all ESG activity. Working with freelance consultants helps a business maintain an objective perspective and make wise decisions for a lower initial investment.
What is ESG doing for companies that meet the challenges? Business valuations increase, and organizations become more stable. Attention to ESG satisfies the desires of clients, investors, and governments, making the effort a win-win.
VI. What Is an ESG Property Consultant Able To Do for Your Business?
This overview provides general guidance. Still, you may wonder, “What is ESG able to do for me specifically?” Instead of going into ESG issues blindly, get customized assistance from our team at ESG Property Consultants.