The Why’s of ESG: Dissecting its Complex Necessity
TECHNOLOGY,  THE WORLD

Rethinking Capitalism: The “Why’s” of ESG and its Complex Necessity

For years, many corporations have received a bad rap. We’ve seen companies called out by regulatory government bodies and activists regarding their carbon emissions, deficiencies in employee benefits, and other publicity concerns. What’s more is the pandemic further exposed the negative impact of some businesses on people and the environment. Hence, there was a need to rethink Capitalism and implement ESG (Environmental, Social, and Governance) into company goals.

ESG itself has paved the way for a shift in the business landscape, but as new startup businesses embraced it and emerged with better workplaces, many corporations were compelled to apply it and change their mindsets—how to become more efficient, balance their budgets, and make their processes more sustainable in the long run. 

What is ESG? 

ESG (Environment, Social, and Governance) is a system that assesses an organization’s operations and policies toward building a more ethical, sustainable, diverse, and empowered business.

For example, a business should have a structured policy in place that ensures the equal and fair treatment of their investors and employees. Another one is that the company’s board should be able to have a diverse set of members (based on their skills, not just because there’s a need to be diverse). That is an example of why ESG is genuinely a complex issue. 

Photo from freepik

Apart from being complex, implementing ESG is multifaceted. It is not only about the moral or ethical issues behind having a business. While the main goal of capitalism is still profitability, leaders should run their businesses in a way that doesn’t harm anyone or anything in the world.  Businesses that don’t treat their workforce well and those that don’t utilize their resources will fall behind their competitors.

The world market is a cutthroat industry because people are now selective about their workplaces. Their offices should include what’s important to them, such as environmental sustainability. ESG is intensifies the fall of unintentional capitalism as more new corporations have evolved and gone into more CSR-heavy companies, not just helping those in need but treating their employees better.

Why is ESG Important?

ESG has a lot of things to consider: suppliers, employees, investors, regulating bodies, and the environment. Corporations should understand that ESG—their commitment to environmental, social, and ethical responsibilities is not just put on a website or discussed in forums but is clearly demonstrated in what they do as a company.

The following real-world issues will improve your understanding of how monumental ESG is and how the lack of it can affect business reputations.

The Fast-fashion industry: H&M is now looking for ways to be more sustainable

Fast-fashion company H&M has had negative publicity in the industry because of its high carbon and gas emissions, water usage, and employee safety and wages. Fast Fashion clothes account for 5.5kg of carbon dioxide and at least 2700 liters of water just for one shirt.

In 2013, H&M’s factory in Dhaka, Bangladesh collapsed and took at least 1,000 lives, which led many to question the brand’s practices, especially the working conditions of their factory workers.

The 2015 documentary film entitled “The True Cost” tackled the global impact of fast fashion on the environment and humanity, specifically its workforce. The documentary was shot in 13 countries and showed the poor conditions of factory workers. The filmmakers also interviewed fashion designers, labor activists, farmers, etc., bringing H&M’s bad business practices to light.

Because of all the backlash, H&M assured the public that they source raw materials and produce clothes more sustainably, leaving a lighter carbon footprint. The company introduced its three pillars for sustainability: Recycled, Regenerative, and Responsible. They encourage their shoppers to recycle and incentivize them by rewarding them extra points if they surrender their used H&M clothes.

In August 2024, H&M has updated its union agreement to improve the rights of its factory workers. Their employees now have the right to refuse unsafe work, receive training on industrial relations, ensure that direct suppliers respect human and trade union rights, and the unions will not be discriminated and still be able to carry out their work.

After H&M implemented its ESG goals, the brand gained more attention, customer loyalty, and trust, especially since its primary market is Generation Z and Millennials, the generations who seek more ways to become sustainable.

What is your Why?

In today’s corporate landscape, it’s crucial for companies to reconnect with their underlying purpose or “why.” Simon Sinek’s books, “Start with Why” and “Find Your Why,” have popularized this concept. By exploring and understanding their core mission and values, companies can better navigate the complex world of ESG.

According to Simon Sinek’s Golden Circle Theory, when leaders understand their “why” or the purpose of their business, they instill cooperation, trust, and positive transformation in their communities. Sinek’s theory was based on his research on the world’s most successful organizations. 

Sometimes, business leaders can get entangled with several issues, and even with successes that they forget their “why.” The truth is that businesses are quite fortunate that ESG has been a hot topic in the past few years. They are constantly reminded to rethink their values, mission, and purpose—about why they built their companies in the first place.

Brand Spotlight: Starbucks’ Ethical Sourcing 

As a company that buys 3% of the world’s coffee, Starbucks ensures they source their products ethically, applying the worldwide Coffee and Farmer Equity (C.A.F.E.) standards. Launched in 2004, C.A.F.E. ensures sustainability and transparency while promoting business profitability.

Photo by Hans Vivek on Unsplash

Adhering to the C.A.F.E. practices helped Starbucks get a long-term supply of coffee and other products while empowering the lives of farmers and their communities, as their purpose statement says: “To inspire and nurture the human spirit—one person, one cup, and one neighborhood at a time.”

Apart from its strong marketing and consistent delivery, Starbucks’ ESG efforts make it the biggest coffee company in the world.

The Role of Technologies in ESGs

Technological innovations play a significant role in achieving ESG. Unfortunately, this is still quite elusive to many business leaders. Implementing new technologies like cloud and AI in their processes ensures their commitment to ESG.

Brand Spotlight: How Verizon uses technology to improve its ESG performance

American communications conglomerate Verizon has found a way to minimize its carbon emissions and energy consumption by implementing new technological innovations like cloud and AI in their processes.

Photo by José Matute on Unsplash

Cloud-based analytics allow complete visibility into processes. In Verizon’s case, the technology monitors every system and controls the company’s negative impact on the environment. As more technological innovations rise, Verizon is confident that it could help them with their ESG initiatives, such as their goal of achieving zero emissions by 2035.

How Technology Creates Employee Productivity and Satisfaction

The invention of health apps that companies can run offers insights into how the employees feel. Another example is if companies offer free online coaching and training to ensure the upskilling of workers can positively impact them.

Cloud-based technologies that minimize manual labor can create autonomy in the workplace. Instead of being stuck with repeated tasks, employees can focus on assignments that induce creativity, analytical skills, and productivity in the workplace, which will improve their well-being and their love for their jobs. 

Photo by Husna Miskandar on Unsplash

AI technologies, such as predictive asset management and maintenance, ensure the safety of warehouse employees. These technologies predict the lifespan of equipment, so the workers handling the assets are safe.

Apart from technologies, ESG involves employee autonomy, empowerment, diversity, well-being, and engagement. Employees play a big part in an organization’s success, making them the most important company players. No one should be taken for granted. EPM (enterprise performance management) tools can help companies engage with their employees and reinstate business goals. Besides that, it’s integral for bosses to take care of every employee’s mental health.

Conclusion

The evolving business landscape has seen a transformation driven by a need for Environmental, Social, and Governance (ESG) responsibility. Consumers are now on the lookout for these, and to be trusted by them, businesses should be able to demonstrate their ESG practices, making sure that they positively impact the environment and society, not the other way around. Lastly, the role of technology in applying ESG principles is undeniable and crucial. 

The featured photo in this article was sourced from freepik.

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