From environmental stewardship, working conditions, to ethical governance, companies are seeing their stakeholders take ESG more seriously and raise the bar on business operating standards. In this post, we’ll examine the six most essential ESG issues that global investors believe companies should address immediately.
This data comes from real-world people investing and managing assets in companies around the world. ESG issues aren’t new, but they are becoming an increasingly critical decision factor for investors, consumers, and employees.
Let’s dive into which ESG issues are taking top priority in today’s recovering market.
- ESG is the environmental, social, and governance values that companies and their investors prioritize.
- 2021 consumer and stakeholder priorities have ignited a drastic push for more ESG responsibilities.
- The top ESG issues cited in a global survey include reducing greenhouse gas emissions, ensuring worker health and safety, improving workforce and executive diversity, equity, and inclusion, addressing human rights in the supply chain, and security for data and privacy.
What is ESG?
ESG is an acronym for environmental, social, and governance. The term is also referred to as sustainable investing, socially responsible investing (SRI), or impact investing.
ESG is a company’s social consciousness compass. It shows investors and consumers where a business’s priorities lie. ESG also measures a company’s level of responsibility to the planet, human rights, diversity, and ethics, among other standards.
As you can see, ESG is a complex concept that encompasses multiple branches of social responsibility to shareholders, executives, employees, consumers, communities, and global populations.
Top 6 ESG Issues Companies Should Be Prioritizing
ESG issues have been moving up the priority list since 2006, but the COVID-19 pandemic poured fuel on the fire, especially for young investors.
About 64% of millennials and younger investors believe ESG principles will be the standard for companies in the future. In comparison, only 42% of baby boomers and older generations share that sentiment. These trends will continue to shift in the direction of ESG as younger investors continue to enter the market and drive initiatives forward.
Boosting your ESG rating isn’t as simple as focusing on a single company goal. All three tenets address multiple issues and act interdependently. So, which ESG issues should businesses focus on first?
PwC’s 2021 Global Investor Survey has provided valuable insight into where investors and active asset managers put their ESG priorities. These are the top six ESG issues companies should be addressing:
1. Reducing Scope 1 and Scope 2 Greenhouse Gas Emissions
Climate change is at the forefront of conversations, so it’s no surprise that the #1 priority on this list took the top spot by a large margin.
Stakeholders are keenly invested in how companies address direct greenhouse gas emissions from their operations (Scope 1) and indirect emissions from activities such as cooling processes and electricity usage (Scope 2), especially as scientists sound the alarm on climate change.
2. Worker Health and Safety
Customers kept a close watch on how companies handled the pandemic. Did CEOs prioritize the safety of their workers? Or did they put profits over health?
The labor shortage goes much deeper than “nobody wants to work.” As the market faces challenges revolving around living wages and worker wellbeing, companies feel heightened pressure to take care of their employees.
Worker health and safety will continue to be a driving factor even after COVID-19 becomes a chapter in the history books.
3. Diversity, Equity, and Inclusion
The push for gender and racial equality continues to be a high-priority topic, especially regarding executive positions.
Investors expect transparency and accountability when companies determine who gets promoted. Stakeholders are also paying closer attention to diverse representation in the makeup of executive boards.
4. Human Rights in the Supply Chain
Stakeholders expect companies to be proactive in identifying, addressing, and reporting human rights abuse within their supply chains.
The European Parliament has called to “urgently adopt binding requirements” to hold EU companies at a high standard regarding the impacts their supply chains have on human rights, the environment, and good governance.
Even in lieu of legal obligations, consumers and investors are demanding these same standards across the board. Companies have long been criticized for using child labor and sweatshops, but now other human rights in the supply chain are taking center stage in the conversation again.
5. Reducing Scope 3 Greenhouse Gas Emissions
Greenhouse gas emissions that happen outside of a company’s control, such as how a consumer uses the goods or services, are categorized as Scope 3 emissions.
Scope 3 emissions represent a large portion of a company’s broad impact. For most companies, these types of emissions can account for as much as 65% to 95% of their carbon footprint.
If that’s the case, why are Scope 3 emissions ranked with almost half of the priority as Scopes 1 and 2?
The primary reason is a lack of data access, which makes this ESG issue difficult to address. Most asset managers don’t have the tools, analytical data, and capability to assess Scope 3 emissions, so companies struggle to track and report their progress while it’s still an important issue.
If businesses are going to address this ESG hurdle, they need to invest in accurately analyzing the data first.
6. Data Security and Privacy Risks
2021 came with an alarming number of high-profile data breaches, including cyber-attacks on Microsoft Exchange, Facebook, U.S. Cellular, and other big-name companies.
We’ve also seen changes in how companies like Google collect and use personal data from their users. As hackers become more formidable and consumers express concerns about their privacy, companies have the burden to answer these concerns.
Check out this news report discussing how ESG issues have impacted companies in 2021 and expected the trends in 2022
Stay at the Forefront of the Most Important ESG Issues
Climate impact, worker wellbeing, diversity, human rights, data security, and privacy are at the forefront of today’s most significant ESG issues that companies must confront.
If businesses want to be successful, they’ll need to strike a reasonable balance between the expectations of their stakeholders, employees, and customers. To do that, they must take a close look at their ESG practices and invest in their companies’ environmental, social, and governance frameworks.
Explore the Televerde Resource Library for all the tools you’ll need to address ESG issues and other current business topics.