The two main reasons for companies to adopt ESG practices today are transparency and accountability. Transparency demonstrates a company’s openness and honesty. Even when a business is not meeting its ESG goals as its leaders had intended, transparency means it must still reveal that data to build trust. Accountability follows transparency. This value ensures that companies take responsibility for what transparency has uncovered.
There are four groups holding companies accountable on their transparency
and accountability efforts:
- Investors
- Regulations
- Industry peers
- NGO/public scrutiny
Investors Make ESG a Priority Numerous studies show that investors are focusing on ESG. Research from Gartner points to the growing value of ESG to investors. Eighty-five percent of investors considered ESG when investing in 2020.
Morningstar, an investment research firm, noted that 72 ESG-related shareholder resolutions appeared on proxy ballots, and half of them passed with majority support. Moreover, investors are choosing investments that prioritize ESG. A 2021 report from Bloomberg estimates global ESG assets will exceed $53 trillion USD by 2025.
Industry Leaders Are Putting Pressure on the Market In addition to investors and regulators, many global brands have put pressure on their suppliers to adopt ESG best practices. The Carbon Disclosure Project, a non-profit devoted to reducing carbon emissions, reported a 24 percent increase in companies asking their suppliers to report on environmental data.
Leading companies recognize the risk that complex supply chains pose when they do not have ESG programs of their own. They cannot afford the damage to their reputation if their suppliers have poor practices. Major impacts on a company’s overall health and longevity are no longer just about fraud; emissions falsification, social welfare, and general market perception all affect a business’s performance. When a supplier does not have high ESG performance, a business will be accountable for those actions, no matter how far down the supply chain it is.- Source Assent
