blog article

What is ESG?

Chloe Elkin 2 min read

Date:May 25, 2023

Environmental, Social and Governance

You may be thinking: “you’ve just told me what ESG means, why should I keep reading?”

For one, I can almost guarantee that you don’t know exactly what at least one of these words entail and examples of them. Two, it’ll help a plucky little sustainability start up if you do. And three, you may learn something you didn’t expect to.

You see, this blog post is part of our wider goal to make sustainability more accessible. There are a lot of sustainability terms out there, and the general assumption is that everyone knows everything, but that can’t be true. So, we’re slowly working our way through some of the most commonly used terms and defining them for you. Making it easier to understand the impact of your choices.

Please read on…

Environmental

How the actions of a company impact the natural environment.

For example, is it a food producer that uses toxic fertilisers, thus polluting the local soil and water? Or, is it a table-making company that uses wood from unsustainable sources, thus threatening biodiversity levels? These are of course examples of bad environmental policies.

Social

How relationships between employees, external contractors and stakeholders, and communities are managed.

You may have seen the claims against Amazon for the maltreatment of their warehouse workers (see stories of workers being afraid to use the toilets and computers tracking every second of their 10 hour shifts) - this is also an example of bad social governance.

Governance

The behaviour of those who run the company, including pay audits.

For example, a BNP manager was recently fired for allegedly harassing and humiliating an employee in front of colleagues. More salaciously, former Swiss ‘banker of the year’ was jailed for claiming 200,000 francs in expenses which he used during visits to strip clubs. (I doubt you were expecting strip clubs to come up when you started reading this piece).

All about the company…

One thing you may have noticed is all of these definitions relate to the behaviour of a company. This is because ESG is a set of criteria used by investors to see if a firm is morally conscious before investing in it.

As you can probably imagine, companies are actively seeking to gain a higher ESG rating, as this often means more investments, but this is frequently achieved through the equivalent of greenwashing rather than actual change.

If we go back to the case of Amazon, for example; in response to the claims that warehouse employees were finding the working conditions to be “slave-like”, the trillion dollar company installed a six foot “zen” room which employees can use, but not to the detriment of their targets. This was in place of implementing a singular 30 minute break per 10 hour shift.

When it comes to more explicit greenwashing, we’ll have another blog post going into more detail soon, but it’s equally important to keep your eyes peeled for claims that seem to be too good to be true.

To wrap it up

While ESG criteria is a way for investors to analyse companies, it also presents a more holistic way of looking at sustainability. Rather than focusing purely on the environment, ESG encompasses social and economic factors as well. This balanced focus is essential if we are to create a more sustainable future for ourselves.

Remember, this is just one part of our series on defining sustainability terms. You can find the first post on the topic here, and a blog explaining what sustainable food is here. Also, make sure you save this blog for the next time you come across the phrase to help make understanding sustainability jargon just that bit easier.