ESG

 ESG

  • ESG (Environmental, Social, and Governance) is a set of standards measuring businesses' impact on the environment, society, and how transparent and accountable they are. 
  • A tool for enterprises to show their non-financial performance to investors. 
  • It is a social value issue, but capital-driven and investor-driven frameworks. 
    • Environmental: 
      • Focuses on how the business minimizes its impact on the environment. 
      • Allows businesses to target different parts of their organization and implement more sustainable and ethical uses. 
    • Social: 
      • Focuses on how business impacts wider society and workplace culture. 
    • Governance: 
      • Processes of decision-making, reporting, and planning for running a business. 
      • Good governance will appeal to investors and your supply chain. 
  • It is an important component for the growth of businesses.  
Seven Features of ESG Management 

ESG Advantages and Disadvantages 
  • Advantages
    • Improves company reputation 
      • Companies with strong ESG are often viewed as more ethical and responsible, attracting more customers and employees. 
    • Attracts investors 
      • Stronger ESG is often seen as more sustainable over time, making many investors prefer companies with ESG. 
    • Increases customer loyalty 
      • Consumers are more likely to support businesses that care about sustainability and social responsibility for a longer time. 
  • Disadvantages
    •  High implementation costs
      • Investing in renewable energy, improving labor conditions, or changing supply chains can be expensive, especially for smaller businesses. 
    • Difficult to measure 
      • Because there is no single global ESG standard, different rating agencies may score the same company differently. 
    • Greenwashing Risk 
      • Some companies exaggerate or falsely advertise their ESG efforts to improve their image without making meaningful changes. 
ESG Best and Worst Examples 
  • Best 
    • Patagonia 
      • Donates a portion of profits to environmental causes. 
      • Uses recycled and sustainable materials. 
      • Promotes repairing products instead of replacing them. 
      • Has strong labor and supply change standards. 
      • ESG strengths: 
        • Environmental: sustainable materials, carbon reduction 
        • Social: Fair labor practices. 
        • Governance: Mission-driven, focused on environmental protection   
  • Worst
    • Volkswagen
      • Volkswagen installed illegal hidden software in about 11 million diesel vehicles worldwide. 
      • The software detected when cars were undergoing official laboratory testing and lowered emissions, but during normal driving, it released nitrogen oxides up to 40 times above legal limits. 
      • The company faced over $14.7 billion in fines and settlements in the United States alone, alongside an immediate multi-billion-dollar drop in market value. 
      • Why it is an ESG failure: 
        • Environmental: cars emitted far more pollution than claimed. 
        • Social: Damaged public trust and affected public health. 
        • Governance: International deception of regulators. 
GreenWashing 
  • Greenwashing is the practice of misleading consumers into believing that a company's products, policies, or goals are environmentally friendly even when they are not. 
Example of Greenwashing 
  • Shein 
    • Shein was accused of greenwashing after an Italian Court fined the company about $1.2 million for making misleading environmental claims. 
    • The evoluSHEIN collection was marketed as more environmentally friendly than regulators believed was justified. 
    • Emission reduction and net-zero goals were criticized because Shein's emissions had continued to increase. 
Difference between ESG and Corporate Social Responsibility (CSR)
  • Both frameworks help organizations address sustainability and ethical business practices, but they serve different purposes.
  • CSR focuses on a company's commitments and actions, while ESG provides measurable data that investors, regulators, and stakeholders use to evaluate performance.  



References
https://www.british-business-bank.co.uk/business-guidance/guidance-articles/sustainability/what-is-esg-a-guide-for-smaller-businesses#:~:text=ESG%20%E2%80%93%20short%20for%20Environmental%2C%20Social,transparent%20and%20accountable%20it%20is. 
https://www.congress.gov/crs-product/IF11716?utm_source=
https://www.patagonia.com/our-footprint/ 
https://www.bbc.com/news/business-34324772 
https://www.eco-business.com/news/20-brands-called-out-for-greenwashing-in-2025/ 
https://kogod.american.edu/news/csr-or-esg 

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