Investors are getting more critical when it comes to where they lay their investment eggs, and this involves considering many factors that bring environmental, social, and governance criteria (ESG) to focus. Most investors will want to study the ESG policy of any firm before staking their hard-earned cash, thus making the role of ESG in modern board governance paramount.
The ESG factors are meant to integrate or align with a company’s core values, its vision, and virtually into each of its daily activities. It all comes down to the board of directors and their ability to use ESG for creating extra value through its seamless integration into the company’s modus operandi.
The role of ESG factors in modern board governance
ESG is an acronym for Environmental Social Governance and is a broad term for the set of standards that forms the foundation of a company’s operation:
- Environment refers to the company’s operational standards as it relates to how sound their judgment is of the environment, climate change, and other related activities.
- Social has to do with the company’s relationship with employees, and its connection to the community, customers, and partners.
- Governance is criteria that spotlights the company’s leadership structure, audits, shareholder rights, and more.
Again, this is what most investors do their research before deciding to invest in any company. This makes its role in modern board governance very pivotal as it can influence internal and internal company relations. It all depends on the board to integrate ESG into its core values and visions to witness the results.
How to integrate ESG factors into a company’s vision, strategy, and daily operations
The board of directors is saddled with the responsibility of integrating ESG factors into the company’s vision and strategy. When fully integrated, the board of directors can watch the company grow into better shape and witness unprecedented results within a short time.
For starters, board management can begin with climate preservation campaigns or find another noble environmental cause to promote. In terms of social elements, the company’s working and cordial relationship with its employees, suppliers, customers, and host community can be overhauled and improved to boost this area. Governance can take a different shape with a review of internal policies, executive compensation processes, hiring practices, venture partner compensation, and even extend into the political arena.
How a board of directors can create more value by integrating ESG factors
Thanks to ESG, the board of directors can add more value to their brand, and here are some of the ways the extra values are reflected in various company areas.
- Employee productivity is boosted. A revamp of the company’s social policy can see employees all fired up with a new work spirit. Morale is boosted, and productivity is increased because some social policies are now friendlier and respect their sense of worth or belonging. With a renewed social impact from the company and thanks to ESG, employees feel a sense of job satisfaction and put in all the energy they’ve got.
- ESG translates to reduced operational costs. With a concern for the environment, energy-efficient ways to boost production can be cultivated—and this is less expensive. With operational costs rising daily, tip-toeing a natural path can reduce costs immensely while protecting the environment. When products are made with the intent of reducing air pollution, energy is further conserved and raw materials used are sourced cheaper. All of these are other practices in line with nature’s goal for humans to reduce costs tremendously.
- Corporate growth and expansion. With a solid ESG framework, the company can experience rapid growth in its corporate relations with other companies and also expand into lucrative niches. Some lucrative niches like the gold industry require a strong community relationship and healthy social culture for easy access to the resources. It evades some of the delays with community cooperation since a socially responsible project might already be smiling at them in the background.
ESG is changing the way companies are operating and how investors or suitors perceive them. With a strong ESG proposition, a company can structure its policy to favor the environment, promote employee job satisfaction, create a sustainable rapport with its social environment and stakeholders, and overhaul its leadership structure for better results.
The board of directors is responsible for the integration process, and if done correctly, it can add value to the company through growth and expansion, reduced operational costs, and a workforce that is ready to drive its profit margins to enviable heights.