BY OLIVIA FISHER
Corporate sustainability is an approach that considers long-term performance by implementing a strategy that analyses every ethical dimension of business operations in the environmental and social affairs. Corporate sustainability has been disputed on several grounds: as an oxymoron, as a means of imposing a specific political view or as a distraction from addressing pressing social problems.
Regardless, headlines demonstrate corporate sustainability is in vogue and embedded in the corporate strategy of many companies:
- The Business Insider reports Adidas has sold over 1 million pairs of sneakers made from ocean plastic.
- BBC reports McDonalds has promised to recycle packing in all it 37,000 restaurants worldwide and ensure that all packaging is derived from renewable materials by 2025.
- Reuters reports that Ford Motor Co (F.N) plans to invest $11 billion in electric vehicles and to have 40 electrified vehicles by 2022.
What is the ESG framework?
Environmental, social and governance (ESG) is a term used in capital markets and by investors to assess the behaviour of corporate firms and to determine the future financial performance of companies.
The philosophy gained momentum in 2000 when the UN Global Impact exposed corporations to the UN global development objectives set out in the Millennium Development Goals (MGDs). Since, corporates began to view corporate social responsibility (CSR) in a quantitative manner, resulting in the development of environmental, social and governance (ESG) data and ratings.
The United Nations Principle for Responsible Investing (UNPRI) further encouraged investors to broaden their understanding of ESG frameworks, emphasising areas where corporations could become more sustainable, leading to an increased concentration on ESG data and metrics. The large universal investor began to drive corporate sustainability and ESG became the tool to effectuate this because of its quantitative nature.
ESG investment concentrates on companies and business strategies that support environmental protection, social justice and ethical management practices. The ESG principles are based on the belief that environmental, social and governance (ESG) factors can affect the financial performance of companies in light of growing evidence that illustrates long-term performance advantages for corporate structures that integrate ESG principles.
Regardless of whether you consider sustainable capitalism as enlightening self-interest, a sustainable future remains an uncertain possibility.
According to Forbes, investors and stakeholders are focused on ensuring boards embrace and address issues of waste, pollution, climate change, water and resource depletion (Environment), working conditions, employee diversity, gender inequality, human rights (Social), as well as ethical management, board diversity and executive pay (Governance).
Aside from the ethical element, ESG standards advance ability of investors to analyse and avoid firms exposed to risk of tangible losses as a consequence of their business operations. This was exemplified by Volkswagen’s 2015 emissions scandal and BP’s 2010 oil spill, both which disrupted firms’ stock prices and was associated with losses of billions of dollars.
A Sustainable Future?
The Brundtland Commission defined the concept of sustainability in 1987 as “[to meet”] the needs of the present without compromising the ability of future generations to meet their own needs.” Regardless of whether you consider sustainable capitalism as enlightening self-interest, a sustainable future remains an uncertain possibility. Corporations continue to lead the transition from older sources of energy to renewables in order to hedge against increasingly costs and a volatile market while politicians continue to “dither”, the Guardian reports.
The international community has gained an undeniable awareness about the plight of the developing world and the challenges confronting our planet as we observe both human-caused and natural disasters, with the devastating effects that these can have on the ecosystem and the well-being of the human population. It is more vital than ever that we develop new, cleaner technologies and cleaner supply chains to sustain our energy demands and facilitate social development in a more innovative and diligent manner than ever before.
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