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In our short ESG Unveiled guide, we delve into the complex and interconnected world of sustainability, where the principles of Environmental, Social, and Governance (ESG) intersect with the urgent challenge of climate change. The aim is to unravel the intricate threads that bind ESG and sustainability, from the foundational pillars of ESG to the pressing need to address our unsustainable practices. We will also examine the potential of integrating sustainability into business operations, shedding light on the pivotal role it plays in shaping a more sustainable future.
What is ESG?
The term describes environmental, social, and governance considerations a business can use when interacting with the environment, community and employees. The environmental considerations include climate change mitigation, reducing carbon emissions, and chemical waste disposal.
The social aspect may consist of investing in human capital and communities, safeguarding human rights and labour laws, addressing product responsibility, and addressing health and safety concerns and supply chain management. Finally, governance considerations may include aspects such as shareholders' rights, the company's and its management's structure, transparency and disclosure, board diversity, employee relations, and remuneration.
The ESG Pillars
Environmental
The environmental pillar, the E of ESG, essentially asks how a business's behaviour, policies, and manufacturing process impact the environment. The most significant considerations here are typically a business's impact on climate change, pollution levels, carbon footprint, waste management, water usage, energy efficiency and renewable energy usage, and hazardous chemical/material usage.
Implementing policies to promote the Environmental pillar is crucial because it allows a business to operate more sustainably and energy-efficiently. It also allows companies to be more compliant with increasingly stringent regulations and less vulnerable to violations of environmental legislation. Finally, it attracts more stakeholders and improves the brand's reputation with consumers.
Social
The social pillar, S of ESG, asks how a business' behaviour, policies and manufacturing process impacts social issues. Social issues can include human rights, the rights of the employees, diversity and inclusivity, employee health and safety, modern slavery, product safety, and relations with the local communities.
Implementing policies to promote the social pillar is essential because it improves relations and boosts morale with the local communities and employees, leading to more sustainable business operations and productivity. It also enhances businesses' compliance with human rights legislation, making them less vulnerable to violations of human rights legislation.
Governance
The governance pillar, G of ESG, deals with how a company is operated and controlled and its relations with external stakeholders. The purpose of it is to ensure that the company is controlled, operates in an accountable way and acts in the best interests of the stakeholders. Governance includes almost everything involved in a company's management, including factors such as the company's board composition, the business ethics, the corporate structure of the company and shareholders rights, the metrics and reporting of a company, transparent decision making, ethics and compliance.
Governance is essential because it forms the foundations for the Social and Environmental pillar. Better governance policies can help a company achieve environmental and social objectives more transparently.
What is sustainability and what does it mean?
The UN has defined sustainability as "Meeting the needs of the present without compromising the ability of future generations to meet their own needs". Sustainability is the idea that we must use the planet's resources to sustain our lives and those of future generations and protect it from destruction and depletion.
Are we currently living sustainably? No.
The way we currently live is unsustainable. As a society, we use and exploit the Earth's resources quicker than the Earth can replenish them. This concept is called Ecological Overshoot.
Our unsustainable exploitation of nature, "Ecological Overshoot", is clearly illustrated by Earth Overshoot Day, a day each year which shows the day when humanity has exhausted all of the earth’s resources for that year. It is calculated by dividing the planet's biocapacity (the amount of ecological resources Earth can generate that year) by humanity's Ecological Footprint (humanity's demand for that year), and multiplying by 365, the number of days in a year.
This is illustrated in the graph below.
As the graph shows, Earth Overshoot Day has been celebrated every year, showing resource consumption since 1970. In 1970, society's resource consumption required just one Earth; however, in 2023, we are using the equivalent resources of 1.7 Earths. It is estimated that by 2030, we will need two planets.
Which of the Earth's resources are being used unsustainably?
The Earth was formed about 4.6 billion years ago. However according to a study by the World Wildlife Fund (WWF), over 30% of the Earth's resources have been destroyed by humans in just thirty years.
We take 88 billion tons of natural resources from the Earth every year (2017); this roughly consists of Biomass: 22.5 billion tonnes, Fossil fuels: 15 billion tonnes, Metal ores: 9.1 billion tonnes, and Non-metallic minerals: 41.7 billion tonnes.
What are the environmental effects of our unsustainable resource extraction?
Our lifestyle and destruction of the planet's resources are impacting the availability of resources and increasing Climate Change.
For example, according to the NGO, The World Counts, due to the cutting down of forests since 2016, an average of 28 million hectares have been cut down every year. Due to the poaching of animal species and the destruction of wildlife, over 20% of species are at critical risk of extinction. Due to the consistent Greenhouse gas emissions, global temperatures could increase by a massive 5 degrees Celsius by 2100. Due to air, ocean, and land pollution, the groundwater pollution rate doubled between 1960 and 2000 and is now over 280 square kilometers per year. Additionally, over 8.9 million people are killed by air pollution-related diseases every year.
How about climate change?
Climate change refers to the drastic and long-term shift in the planet's temperature and weather patterns, which evidence has shown is caused by a build-up of gasses in the atmosphere. These gasses mainly originate from humans burning fossil fuels for industry, agriculture, and electricity, and are worsened by deforestation, land use, buildings, etc..
The accumulating gasses form a greenhouse effect around the atmosphere, causing it to heat up and increase global temperatures. The impact of climate change is dangerous, including extreme weather events, rising ocean levels, ocean acidification, flooding, and food insecurity.
Inevitably, all of these impacts are a direct threat to business operations. Climate change will impact the supply chain of businesses, the availability and price of unsustainable fuels such as coal and oil, and the cost and availability of water, to name a few. Companies have to adapt and become more sustainable to survive. They have to use the Earth's resources sustainably. Businesses must prioritize ESG, environmental, social, and governance policies.
How can you integrate ESG into your business?
Operations and Supply Chain Management
- Supplier Selection: Choose suppliers with strong ESG practices and ethical business standards. Evaluate their environmental impact, labour practices, and adherence to social responsibility.
- Transparency: Foster transparency in the supply chain by providing clear information on sourcing, manufacturing processes, and social responsibility efforts.
- Risk Management: Assess and mitigate environmental and social risks within the supply chain to ensure long-term stability.
Product Development
- Sustainable Design: Integrate eco-friendly materials, energy-efficient features, and recyclability into product design.
- Life Cycle Analysis: Conduct a life cycle analysis to understand the environmental impact of a product from raw material extraction to disposal and identify areas for improvement.
- Innovation for Social Impact: Develop products that address social challenges, promote inclusivity, and positively impact communities.
Stakeholder Engagement
- Dialogue and Communication: Engage with stakeholders regularly to understand their concerns and expectations related to ESG and sustainability.
- Partnerships: Collaborate with NGOs, government agencies, and other businesses to work on shared sustainability goals.
- Reporting: Provide transparent and comprehensive ESG reporting to demonstrate commitment and progress to stakeholders.
- Training and Education: Educate employees on the importance of ESG and sustainability, encouraging them to contribute ideas and adopt sustainable practices.
- Inclusive Workplace: Foster a diverse and inclusive workplace, ensuring fair labour practices, equal opportunities, and a positive corporate culture.
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