ESG stands for environmental, social, and governance. It is a set of standards that organisations can use to measure their impact on society and the environment. ESG is becoming more important as investors are becoming more interested in sustainable investing. Organisations that meet high ESG standards are often seen as being more responsible and having a positive impact on the world.
Organisations worldwide are gradually adapting to the trend of ESG. For example, in 2018, 66 percent of global companies reported using at least one type of ESG metric when measuring performance, up from 60 percent in 2017. The number of companies reporting their progress in reducing greenhouse gas emissions has increased by 20 percent since 2016.
Despite the increasing awareness of the importance of ESG factors, there are still many organisations that have not taken steps to integrate these considerations into their operations.
A study by the Boston Consulting Group (BCG), found that only one in four organisations are taking what it calls "integrated action" on ESG issues. The research, which is based on a survey of more than 1,000 organisations around the world, found that most organisations are only taking isolated actions on ESG issues. This includes things like recycling programs or energy-efficiency initiatives. Only a minority of companies are taking a more holistic approach to ESG, which includes setting targets, integrating ESG into business strategy, and disclosing progress. The is a gap between what organisations say they are doing on ESG and what they are actually doing.
For example, while 95% of companies surveyed said that they have an energy-efficiency program in place, only 60% of them have set targets for reducing energy consumption. The study also found that there is a lack of transparency around ESG reporting. Only 40% of organisations surveyed disclosed their emissions data, and just 20% disclosed their water usage. This lack of transparency makes it difficult for investors to make informed decisions about where to allocate their capital.
Despite the clear benefits of incorporating environmental, social and governance (ESG) factors into business decision-making, some organisations have been slow to adopt these principles. There are several reasons for this, including a lack of understanding of the potential benefits and a perception that ESG factors are expensive or time-consuming to implement. But perhaps the most significant reason why many organisations are not doing enough to address ESG issues is that their leaders are not making it a priority.
According to the regular pulse check surveys conducted by BCG in 2022, roughly 70% of leaders reported that they are only moderately or not at all effective at integrating ESG into company strategy and governance. Additionally, although leaders think their boards should devote more time to strategic reflection when it comes to ESG issues, more than half (53%) said they are not effective at doing that.
This is a problem because, as the head of an organisation, a leader's character sets the tone for an organisation and can have a significant impact on its culture of practice.
According to Dr Peter Cheng, a good character is an amalgamation of a person’s values, moral principles, and ethical principles. A leader’s character strongly influences an organisation’s character. Since ethical principles ensure the concerns of the community at large are not neglected, the character of organisational leaders can therefore have a significant impact on the organisation's overall ESG initiatives. If a leader is not committed to addressing ESG issues, it is unlikely that the organisation as a whole will be either. Only when leaders’ character is pro-ESG will their organisations be likewise.
This is essential not just for the future success of businesses, but for the health and wellbeing of our planet.