Visionwide
  • February 8, 2022
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The buzzword ESG which stands for environmental, social and governance has been widely discussed around the country, signalling the shift towards sustainable business practices that wholesomely covers the three aspects. This acronym has become a set of standards used to measure the organisation’s business impact on the environment and society, as well as an important criterion that investors incorporated to evaluate the organisation’s performance and ability to resist future potential risks. Recent year has seen a surge in ESG regulations, particularly the European Union in the forefront to introduce climate-related and corporate governance regulations.

What is ESG

E – Environmental Pillar:

  • Refers to the organisation’s impact on the environment, including its greenhouse gas (GHG) emissions, energy efficiency, resource usage, waste management, biodiversity management etc. Companies that demonstrate strong environmental stewardship and adopt sustainable practices are likely to attract more investors.

S – Social Pillar:

  • How the organisation cultivate relationships with its stakeholders. The initiatives include their employee development, labour practices, supply chain management, health and safety standards, controversial sourcing issues, and more. The social pillar also emphasis the commitment of organisation in protecting human rights and embracing responsible sourcing.

G – governance pillar:

  • Refers to the governance structure which encompasses factors such as board diversity, executive compensation that aligned with the organisation’s sustainability performance, risk opportunities management and how organisations deal with issues related to its shareholders right. This pillar also measure the degree of transparency and accountability of the organisation in managing its business.

Organisations who failed to comply the mandated regulations are likely to face series of consequences:

  • Investor scepticism where investors are likely to shy away from investing in organisation that lacks ESG accountability and does not take ESG seriously.
  • Organisations that do not address environmental risks may face financial challenges related to regulatory non-compliance and long-term impact of environmental damage..
  • Damage an organisation’s reputation as a result of involved in ESG-related controversies.
  • Face operational disruptions due to social issues such as labour disputes or inadequate workforce management as the organisation failed to take care of its employee well-being or rights
  • Face legal consequences such as fines or sanction as a result of stricter ESG regulations that mandate organisations to adhere
  • Supply Chain Disruption due to protest or legal actions arise from unethical business practices