ESG: More Than Just Framework
Updated: Feb 22
Futures can be altered by the investments we make today. This concept has started to influence the investment landscape today because of a growing understanding of the social impact of financial decisions as well as the context of climate change and resource scarcity. ESG (environmental, social, and governance) considerations are increasingly important in funding decisions. Investors strive to strike a balance between profit, risk, and "doing the right thing." Long-term economic and social stability is a concern for governments and regulators. ESG and responsible investment are viewed as clever strategies by asset managers and owners to gain a competitive advantage. A growing community of ethical investors is being created by demographic changes as the younger generations become more engaged in the market.
What is ESG?
ESG is a framework used by stakeholders to explain about organization's management of risks and opportunities related to environmental, social, and governance or sometimes called ESG factors. ESG adopts the comprehensive viewpoint that sustainability encompasses more than just environmental concerns. Although the word "ESG" is frequently used in relation to investing, it also relates to customers, suppliers, and employees who are all becoming more concerned with how sustainably an organization conducts its business. The environmental impact(s) and risk management procedures of an organization are referred to as environmental factors. The relationships a company shares with its stakeholders are referred to as the social pillar. Corporate governance describes the direction and management of a company.
The Importance of ESG
ESG aspects were once viewed by many investors as being too expensive to prioritize. Focusing on these elements, it was thought, would make it more difficult to optimize profits. The opposite, however, has been shown by more recent study. ESG is now expanding and changing quickly as more investors strive to include ESG considerations in their investing decision-making. This year's ESG market is already expected to double. Additionally, the Portfolio Decarbonization Coalition, an organization supported by the UN and comprised of 27 institutional investors and asset managers, mostly from Europe, who collectively oversee $3.2 trillion in assets, has pledged $600 billion to fund green initiatives and projects.
European legislations are driving a strong application of ESG elements everywhere, including the banking sector. To support the green deal and ensure the implementation of a more sustainable economy, the ESG framework is being promoted inside the EU. According to Nathan Bonnisseau, co-founder, and chief marketing officer at Plan A, ESG is expected to play a bigger part in how companies are appraised, not only by investors but by consumers and stakeholders. The figures show a rising understanding that businesses need to manage their environmental effect in creative ways to succeed. The development of sophisticated methodologies for assessing ESG actions and effects is the key to achieving sustainability, which is the new ideal.
The Companies with The Best ESG
In the final report of an eight-year study by the MIT Sloan Management Review on how corporations address sustainability. 90% of executives view sustainability as important, but only 60% of companies have a sustainability strategy and have taken serious action beyond a few stand-alone initiatives. Here are the 5 top ESG focused companies:
One of the largest IT businesses in the world, Microsoft Corporation, has a market worth of $1.76 trillion and is at the forefront of ESG. Microsoft has the same 2030 carbon neutrality goal as Apple. Microsoft Corporation has reduced its carbon emissions by 6% over the last year since announcing this historic commitment in January 2021. It purchased the removal of 1.3 million metric tons of carbon from 26 projects worldwide within the same time span. The "historical emissions" that Microsoft Corporation has produced since its establishment will be eliminated by the year 2050. Microsoft claims that by 2030, it will be "water positive," replacing more water than it consumes.
One of the largest supply chain solutions providers in North America, J.B. Hunt Transport Services, Inc. (NASDAQ: JBHT), has announced a new objective to reduce its carbon emission intensity by 32% by 2034 (from a baseline of 2019), furthering the company's sustainability vision of advancing the freight industry toward a low-carbon future. They plan to transition over-the-road loads to intermodal by 2021, saving an estimated 3.6 million metric tons of CO2 emissions while improving fuel efficiency and lowering CO2 emissions by more than 20,000 metric tons through fleet modernization. With JB Hunt 360, their drivers avoided an additional estimated 1.6 million empty miles, creating additional efficiencies and cost savings across supply chains.
Apple has committed to becoming carbon neutral throughout its entire global supply chain and the life cycle of its products by the year 2030. Its own international activities, including business travel and staff commuting, are already carbon neutral. The iPhone manufacturer said in April that its energy providers had increased their use of renewable electricity by more than twofold over the previous year. Over 10 gigawatts of capacity, out of a total of approximately 16 gigawatts in pledges for the following years, were stated to be operating as of today. Apple and the Applied Environmental Research Foundation are working together in India and Columbia to protect and preserve mangroves, which take in and store carbon from the atmosphere. Additionally, Apple has the lofty aim of making all its goods in the future out of recycled or renewable materials. Already, iPhones are recycled to obtain minerals and rare earth elements for future use.Nearly 20% of the materials used in Apple goods sold during its fiscal year 2021 come from recycled sources. It doubled its utilization of cobalt, rare earth materials, and recycled tungsten.
One of the top ESG firms in 2022 is the cloud computing corporation Salesforce Inc. In September 2021, Salesforce Inc. said that it had reached net-zero residual emissions throughout its entire value chain and that its operations had used 100% renewable energy. Salesforce Inc. has pledged to end all carbon emissions from its operations by the year 2040 and has joined Amazon's The Climate Pledge. The business created the "Net Zero Cloud" to effectively monitor and assess its own carbon impact. According to the CRM business, it collaborates with vendors that have agreed to lessen their carbon footprint by 2024. Salesforce Inc. also entered an arrangement with Australia's Blue Grass solar farm in 2020. The project will be able to power 80,000 houses and prevent more than 320,000 tons of CO2 from being emitted each year.
Bank of America
By 2050, Bank of America Corp. wants to have net-zero greenhouse gas (GHG) emissions. For Scope 1 and Scope 2 emissions, the bank met the net zero emission objective in 2019. The business claims that in order to speed the transition to a low-carbon economy, its Environmental Business Initiative would "deploy and mobilize" around $1 trillion by 2030. According to Bank of America Corp, all of its yearly power consumption is sourced from renewable resources. The bank also asserts that as part of its Environmental Company Initiative, it has invested an astounding $200 billion in funding low-carbon and sustainable business ventures since 2007. An ESG advising and finance solutions team was established by Bank of America Corp in 2021. According to Reuters, the business added four senior executives to the team this year.
ESG has developed into an essential instrument for managing risk for investors as well as a strategic advantage in the battle for customers and talent. Corporate attention to ESG ultimately improves the alignment of business with beneficial societal results. An organization has the chance to actively communicate its own story in an ESG report. Companies frequently respond to bad news too late and must adopt a defensive posture to restore their public image. An ESG report is an investment in preventing misunderstandings and maintaining your well-earned brand in a constantly shifting market. No other organization has a greater understanding of what your firm does and how you do it, thus your ESG report should be seen as a personal statement that helps to establish your company's position in the global marketplace.
We can assist you in your ESG journey and report, feel free to contact us!