The term ‘Environmental Social Governance’ (ESG) first came into fruition in 2004, in a report titled ‘Who Cares Wins’, put together by a group of banks and investment firms. The group said that greater integration of ESG issues into investment decisions would lead to more stable global financial markets. From that point on, the acronym was popularised.
After this, the three pillars of ESG became a framework for organisations to assess their performance on various ethical and sustainable practices. Included in this is a company’s climate strategy, community engagement, and corporate governance - the systems by which companies are directed and controlled.
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Fast forward to nearly twenty years later, and ESG is a staple consideration in countless firms across the world. However, the gravity of importance ESG has in boardrooms and in businesses has fluctuated dramatically in that space of time.
Various disruptions to businesses, including those caused by the pandemic and economic decline, forced firms to rethink where their money was going. This reprioritisation meant many businesses withdrew, or even completely scrapped, their ESG efforts, revealing the sad reality that companies view ESG as non-essential.
But what does the new year look like for ESG? And does the cost-of-living crisis really need to impact business attitudes towards it?
Why are businesses withdrawing their attention from ESG? Does it go beyond the cost-of-living crisis?
Businesses paid less attention to ESG in 2023 for multiple reasons. The cost-of-living crisis is a primary reason for firms cutting back on their ESG efforts. Beyond this, having a focus on environmental and social issues became trendy, especially for companies wanting to appeal to younger, more socially aware consumers. This explains why it’s had a recent lack of attention and the short-term focus of firms on these areas.
Starting in 2023, ESG reporting in the UK will be defined through Sustainability Disclosure Requirements (SDRs), which will offer a framework for companies to handle their sustainability practices and establish measurable goals and objectives. This may have an impact on attitudes to these goals in the new year.