More Than a Number
How ESG Can Change Corporate Behaviour for the Better
Companies that embrace the philosophy behind ESG by adopting improved business practices that have a positive effect on the environment, social factors and organizational governance will in turn ensure their own longevity and sustainability.
But it’s not just about meeting a set of key metrics on paper. To effectively incorporate ESG into business plans and approaches, companies need to adopt a mindset shift that drives behavioural change, says Adrian Saville, Professor at the Gordon Institute of Business Science at the University of Pretoria.
“When we talk about ESG in a single sound bite, what we're really talking about is a very wide-ranging, far reaching set of measures that is systemic, and it’s ultimately about the behaviour and conduct of the business” says Saville. “It’s about philosophy, it’s about mindset, it’s about business systems. “The point of ESG is not to just deliver a score — it’s intended to change behaviours.”
The investment industry has led the charge on ESG, which has become a “front and centre” consideration in the allocation of capital and assessment of the performance or composition of a portfolio, Saville says. The industry has established a robust set of parameters that can help determine how company performance stacks up against environmental, social and governance standards.
These metrics consider a range of company actions and impact, which together are pulled into a single measurement that makes up an ESG score. On the environment side, it considers carbon footprint and sustainability measured like the recyclability of outputs and whether a company uses fossil fuels. On social impact, a company’s effect on workforce, its pay equity and pay scales, and gender balance are among the parameters measures, while governance is primarily concerned about the way a business conducts itself, including the composition of committees, whether there is effective oversight and how conflicts of interest are managed.
The evidence shows that companies that successfully integrate ESG elements throughout their business as a core philosophy typically outperform their competition and deliver better results. Often, the most successful businesses understand that company and community are inextricably intertwined, adds Saville.
“You cannot separate the company and the community, which points to social and environmental alertness — that the company is very alive to the fact that it doesn’t exist in a vacuum. Instead, it belongs to a much broader system, called the world.”
To read more: ESG Gender Equality Report