ESG risks are not new, neither is corporate governance. The term ESG was first coined in 2005 in a study titled “Who Cares Wins”. Did you know that since 2018, ESG investments are estimated at over $20 trillion in AUM or putting it in another way, they amount to almost a quarter of all the professionally managed assets around the world?
Organizations now understanding the ESG risks and the financial or non-financial impacts of not mitigating such risks. Let’s put it this way, would you, as a stakeholder like to invest in a company that isn’t willing to make provisions to mitigate ESG risks? The answer is no. So now we ask, why wouldn’t you want to invest in such a company? Because, when a company or an organization fails to understand Corporate Governance or ESG risks related to it, it fails to understand the financial implications such risks will have on that organization. This means the organization may not survive in the long term.
E.g. a lot of leading aviation companies are moving towards purchasing renewable jet fuel, mixing alternative & conventional fuels to power their daily flights thus aiming to reduce the emissions from jet fuel by as much as 80%. Such aviation companies have also invested billions of dollars in emission mitigation projects that aim to offset billions of metric tons of CO2 emissions.
Similarly, a lot of corporate giants also aim at reducing their carbon footprints by creating a sustainability strategy by implementation of an end-to-end sustainability report process. This allows them to understand ESG risks in a better manner & weigh the opportunities which can be included in the overall company strategy. It will also improve the stakeholder’s trust and add transparency to the overall processes. We have listed the benefits of having a sustainability strategy in place:
- Identification of ESG risks, opportunities & the impact (both financial & non-financial) on business for taking such initiatives.
- Identification of ESG key factors, measuring the relevant KPIs & tacking ESG performances against the Industry benchmarks.
- Integrating ESG processes into your value chain will result in transparent processes and increased value for stakeholders.
- The integration of ESG processes also allows the reinforcement of values within the top management positions thus reiterating the importance of mitigating ESG risks with a sustainable, long-term strategy.
- Creation of goodwill in the industry and gaining the trust of external stakeholders and customers.
With the rise of ESG risks, any organization not wanting to inculcate ESG risk mitigation strategy in its long-term strategy, will not be able to survive in the future. So, if you haven’t really thought of it, give it a thought. If you want to understand how ESG can be made a part of your Corporate Governance, contact us and we can help you understand the importance of Corporate Governance and ESG risks and help you define the long-term goals and strategies for your organization.