Recently, amid all the talk about how employees (especially millennials and Gen Z staffers) are looking for a better work-life balance, flexible work schedules, and more meaningful work when selecting employers, another acronym has quietly entered the mainstream – ESG. In this article, Martin Lee of Pacific Prime shares the ins and outs of ESG, why it matters to your company, and how your company can win hearts by scoring high in this department.

What is ESG?

ESG is an abbreviation for environmental, social and governance, which is a collection of standards that consumers, investors and corporations use to assess a company’s sustainability and ethical influence.

The ‘environmental’ component focusses on the company’s impact on the environment. Factors such as carbon footprint, waste management and natural resource consumption are considered when assessing this aspect. Interestingly, while previously companies used to be able to brag if they attained carbon neutrality, the bar has now been raised. The new standard is ‘carbon negative’, meaning the company is removing more carbon dioxide from the atmosphere than it emits.

The ‘social’ component evaluates the company’s influence on society, taking into account issues such as labour practices, employee rights, diversity and inclusion, and community involvement.

Finally, the ‘governance’ aspect focusses on the company’s internal systems and structures, including board and executive diversity, corporate transparency, executive compensation, and gender and racial equity.

The concept of ESG came about in response to the growing awareness of the need for environmentally and socially responsible practices in the business world. Companies with good ESG scores are believed to be more resilient, more sustainable and therefore more attractive to investors.

Why your company’s ESG reputation matters

A company’s ESG standing is significant for multiple reasons. Primarily, ESG factors are gaining importance among investors who seek companies that manage their sustainability and ethical practices well. Companies with a solid ESG reputation will thus find it easier to attract investors and achieve sustained growth year after year.

A good ESG reputation can also result in an improved brand image and customer loyalty. Consumers—particularly those of the younger generation—are increasingly mindful of the environmental and social impacts of their purchasing decisions, and prefer products and services from companies that align with their values. A business that takes environmental stewardship, social responsibility and ethical governance seriously is likely to win over customers invested in these issues.

Furthermore, a good ESG reputation can help attract quality employees, because it is ultimately in their interest to work for a company that promotes people based on work performance and sound judgment, rather than a slew of other factors that should have no relevance on this score but sadly often do; for example, family connections.

ESG factors are gaining more significance in regulatory compliance as well. Governments and regulatory bodies are introducing policies to promote sustainable and ethical practices. Companies that do not treat ESG factors with the seriousness they deserve could face the risk of violating regulations, leading to financial and reputational penalties.

How your company can improve its ESG score

There are a number of measures that companies looking to improve their ESG scores can pursue. Six of them are listed here:

1. Embrace sustainable practices

Cpmpanies can use renewable energy sources, minimising waste, and working with environmentally friendly supply chains to reduce their environmental impact, save costs and comply with regulations.

2. Foster diversity and inclusion

Companies that prioritise diversity and inclusion throughout their organisation can create a more inclusive work environment, enhance employee engagement and attract a diverse pool of talent. To that end, a company can implement inclusive recruitment and retention policies, provide training and development programmes, and put in place initiatives to address subconscious bias.

3. Improve corporate governance

Corporate governance procedures can be updated to ensure transparency and integrity in company operations. Strong governance practices can prevent corruption and unethical behaviour while increasing accountability. This may involve measures to promote transparency in financial reporting, executive compensation and board composition, as well as the independence and prevention of conflicts of interests of board members in decision-making.

4. Prioritise employee health and safety

Companies can prioritise employee health and safety by implementing initiatives aimed at preventing injuries and illnesses, promoting good mental health and the availability of relevant resources. Above all, employees’ rights and welfare must be zealously guarded.

5. Support local communities

Your company should seek to become a contributing member of the local community in which it operates. It can provide support to disadvantaged groups, contribute to infrastructure development, and promote education, health and the general well-being of the local community. By supporting sustainable local communities, your company can build trust with stakeholders, while also fostering a more favourable business environment.

6. Engage business partners

You can provide incentives to your business partners to focus on ESG themselves. For example, when inviting tenders, your company can include as a requirement a report bearing an independent auditor’s signature on the tenderer’s ESG initiatives. Later on, in the tenderer selection process, one criterion can be the tenderer’s demonstrated commitment to ESG.

While one company may seem too little to change anything, it can still set off a wave that eventually will be big enough to get suppliers to rethink their priorities.

Pacific Prime is an important strategic base for the global development of the Pacific Prime Group. The group has a history of more than 20 years, focussing on private health insurance and employee benefits. It has served over 1.5 million individual customers and more than 5,000 corporations in 180+ countries and regions. Pacific Prime Group currently has 1,000+ employees in 12 offices worldwide. Services provided include insurance services, insurance intermediary services, risk management, risk consulting and health management services.

Pacific Prime is one of the few wholly foreign-owned insurance intermediaries in China. Headquartered in Shanghai, Pacific Prime has offices in Beijing, Guangzhou and Shenzhen.