ESG, an acronym for Environmental, Social, and Governance, encompasses a set of criteria that pertain to the assessment and measurement methods employed by a company or governmental entity to align with the core principles of sustainability. This transcends mere economic considerations, encompassing environmental, social, and corporate governance dimensions.
A company is deemed sustainable when it can maintain a competitive position in the market, creating shared sustainable value with all stakeholders and delivering consistent returns over time. To demonstrate a genuine commitment to sustainability and create tangible virtuous cycles in the short and long term, constant measurement against ESG indicators is essential. This involves communicating the company's compliance level through generation of comparable sustainability reports over time and across different enterprises.
The integration of sustainable systems and the development of sustainability reports make companies more appealing to external stakeholders. The widespread perception now views ESG principles as sources of economic, environmental, and social value creation. Adopting those criteria allows companies to maintain or acquire a competitive advantage in their markets while reducing risks and costs.
Green and social issues have become focal points in both public and private finance, with private finance experiencing significant momentum driven by key players like BlackRock. Its president, Larry Fink, emphasized the pivotal role of sustainability and compliance in the financial world.
Those adhering to ESG criteria can also benefit from various state initiatives supporting companies engaged in sustainability actions, ensuring lower risks. However, given the numerous sub-goals detailing ESG criteria and concerns about their reliability, defining when and if a company applies ESG criteria is not straightforward. Measurement is further complicated by the absence of a universal standardized language that can provide consistent criteria over time and space, despite the existence of official ratings. Companies often lack transparent communication externally regarding their sustainability goals, making it difficult to distinguish genuine commitment from communicated intentions.
How can we distinguish companies genuinely committed to integrating ESG indicators from those using "trendy" language without truly incorporating sustainability principles into their business strategies? When it comes to clearly identifying the level of adherence and commitment to sustainability, it's essential to look beyond simple corporate narratives and focus on transparency and quantification of results. Companies oriented in this direction often adopt standards proposed by authoritative organizations, providing objective and comparable indicators, such as:
- Global Reporting Initiative (GRI): standards aimed at providing companies with all necessary information to enhance communicative transparency
- OECD Guidelines:
recommendations and provisions for companies pursuing CSR - Social Accountability 8000:
social responsibility standards aiming to promote the protection and enhancement of human rights while simultaneously contributing to the increased competitive capacities of companies - UNI ISO 26000 Guidelines:
instructions on implementing and integrating ESG criteria into business practices - UN Global Compact:
encourages sustainable economies through the dissemination of ten fundamental principles respecting the environment, human rights, and the workplace
In the last ten years, business risks have shifted from being predominantly economic to being linked to environmental or social safety. Companies committed to sustainability reduce their overall risk profile; this phenomenon can lead to an increase in the overall value of companies. Sustainability has become crucial in financial markets, with companies refraining from adopting sustainable development models potentially encountering impediments in accessing credit.
The above-proposed tools not only facilitate transparent communication but also contribute to reducing business risks related to environmental, social, and governance issues. In a context where business risks are increasingly tied to sustainable issues, companies dedicated to sustainability can not only lower their overall risk profile but also enhance the overall value of the company. This reflects a growing social and environmental awareness, but it can also positively influence stock prices, highlighting how sustainability is not just an ethical obligation but also a key element for long-term value creation.