ESG Environmental, Social, Governance is used by companies as the main guideline in carrying out investments. ESG investment strategies have grown rapidly around the world in recent years. In fact, many capital markets are now adopting products with ESG criteria, such as mutual funds, brokerage companies or robo-advisors.
Investors filter the potential of a company through three criteria, namely environmental, social and government.
It can also help investors avoid companies that may pose greater financial risks from spending on environmental practices.
Environmental criteria include matters related to the conservation of natural resources. Examples include policies on hazardous waste management, toxic emissions management, and AMDAL.
If you have contributed to the environment, the company will also have good conditions for carrying out its operations.
Social criteria ensure that there is good interaction and provision of rights between parties in the company, between workers, suppliers, consumers, and even its leaders. Make sure that there are no cases of conflict of interest and immediately consolidate if there are any.
Meanwhile, the government's criteria relate to how companies apply accurate and transparent financial methods.
Regulations, laws, ethical rights, and management systems need to be optimized in order to increase the company's credibility in the eyes of investors. Company credibility is necessary. Don't let illegal documents slip through the company archives.
The integration of these three criteria is an adjustment before making an investment decision.
If the risk is assessed as high, the company can increase costs and/or reduce its sales levels.
ESG Influence
It cannot be denied that ESG always has a positive connotation regarding a company's financial performance and surrounding aspects. In fact, many companies have implemented this strategy.
So, what are the real impacts of ESG?
Share the Environment
One of the main goals of ESG is to have a good influence on environmental matters. The company strives for vital programs such as energy savings, waste disposal management and reforestation.
All of these activities refer to green sustainability, which is oriented towards environmental preservation.
The hope is that the company can bring more sustainable changes to the company's operational locations and the surrounding areas.
Cost cutting is influenced by ESG because production uses renewable energy which is easily found. Carbon, emissions, and greenhouse gas reports will also make tracking easier.
In addition, worker productivity will increase in an environment that is free of pollutants and dangerous chemicals. This healthy environment is also able to optimize HSE for the company.
2.Cost Savings
The hotel industry is currently continuing to transform into a sustainable business by implementing environmental, social and governance (ESG) principles. Apart from helping reduce carbon emissions and environmental pollution, the use of ESG can save operational costs.
For example, implementing ESG through recycling single-use products can save operational costs by up to 85%. Usually, hotels recycle food waste into organic fertilizer and used cooking oil into soap.
Applying sustainable principles by recycling organic waste into useful goods is not difficult. This method can be applied to all levels of employees, from company directors to ordinary staff.
So, ESG Initiatives can help improve a company's overall financial performance by reducing energy bills, operational costs, and other expenses – in addition to potentially driving higher sales.
3. Competitive Advantage
Essentially, without any moral obligation, ESG policies are simply risk mitigation and a series of risk analyzes to ensure business resilience. ESG factors used to be unimportant in risk assessments because they were seen as long-term risks with little impact on profitability, but accelerating climate, technological, political, and cultural change has put ESG factors on the agenda. Assessing potential ESG factors helps companies anticipate and avoid dangers, strengthen their brands, and generate profits.
At the heart of ESG criteria is the simple idea that companies will be more successful if they create value for all stakeholders – employees, customers, suppliers, and society in general, including the environment – and not just for the company.
Of course, none of the above makes sense if the main goal of ESG risk analysis and management is not put into perspective and kept in mind: to increase the impact of business on society. It may not be your top priority, but if you don't see the value in this idea, then your business proposition will be increasingly marginalized by the companies that do.
Companies with successful ESG programs can improve their market position and brand strength compared to competitors.
4. Reputation and Brand Image
The brand image of a business is more than just a mission statement or tagline. People will do business with people they know, like, trust and respect.
ESG activities have a significant impact on a company's brand image. Environmental, social and governance activities all contribute to shaping a brand image. In particular, social and governance activities were found to have a positive impact on brand image. Environmental activities also play a role in influencing brand image. Additionally, environmentally friendly activities and corporate social responsibility were found to have a significant positive influence on brand image. Brand image in turn has a positive influence on consumer behavioral intentions and purchase intentions. Therefore, implementing ESG management practices can improve a company's brand image and ultimately influence consumer behavior and purchasing decisions.
Environmental, social and governance or ESG aspects are an important element for companies in carrying out responsible business activities. The reason is, ESG (Environmental, Social, and Governance) are three key factors that can influence the value and reputation of a company. ESG also reflects how companies manage environmental, social and governance issues that are important to stakeholders, such as investors, employees, consumers, and society.
ESG can encourage investors and society to make decisions about the future of the earth and the social environment as well. If we hope for improvements in the current climate crisis, environmental sustainability, the welfare of workers and society at large, then invest in companies that run their business by prioritizing positive impacts on these matters.
ESG makes it easier for investors to identify opportunities for investment. This approach greatly influences external stakeholders as well as the company's internal conditions.
All-in-one, environmentally and human resource friendly governance makes ESG very popular with the wider community.
The hope is that ESG will not only be used as a trend or corporate image, but will really be considered in terms of its substance and implementation.
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