Importance of ESG in Business _ Zell Education

1. What Makes ESG (Environmental, Social, and Governance) Important for Businesses? Businesses are a part of society and societies are part of the environment. Therefore, anything that affects the environment eventually affects industries too. The contemporary world is a global landscape in which every trade is interrelated. When it comes to ESG, everyone gets their fair share of the responsibility to act out their sustainable practices ethically. Let us explore the importance of ESG in businesses. To find out, one must understand its origin, adaptability and two-way benefits for businesses and investors alike. Where Does ESG Come From? ESG comes from a crafted framework of three sectors namely, Environmental, Social, and Governance that have one vision in common — sustainability. The ESG investment model looks ahead to evaluating criteria in companies and ranks them based on carbon footprint, labour practices, board diversity, ethical conduct, and community engagement.

2. The Importance of ESG for Businesses and Investors ESG aims to have a societal impact on businesses by making them self-actualise long-term sustainable development goals and how it affects the financial performances of the companies. Whosoever is a part of the capital pool (the business and the investors) is positively affected when ESG is adapted. ESG is crucially important due to— 1. Risk Management — Low-Risk Investment ESG factors if led out properly in businesses can prove to be the ideal ‘low-risk high-return’ investment option. These measures help businesses identify and mitigate risks of varying degrees such as — regulatory compliance, reputational damage and operational disruptions. 2. Reputation and Brand Value Having a business pathway with fewer roadblocks helps enhance a company’s reputation, build trust with stakeholders and strengthen brand loyalty. 3. Long-Term Sustainability

3. Climbing to the top is easier than staying on the top. Sustainability is essential within business operations to make the work culture resilient, inclusive, human-centred and competitive in a rapidly evolving marketplace. 4. Investor Preference It is a practical decision on the part of the Investors to favour companies with strong ESG performance metrics. These companies are perceived to be less risky, more responsible, and capable of delivering superior financial returns.

5. Why Adopt an ESG Approach? A lot of businesses are proactively choosing to adopt an ESG approach considering the importance of ESG. It can affect in several ways — 1. It can radically change the business landscape through healthy competition. 2. The eco-friendly intent aligns well with modern stakeholders’ ethical expectations and societal values. 3. Adopting ESG in business operations is like putting the ‘human’ aspect of society at the crux of technological innovations and developments. This global human empathy found in the ESG model is backed by ethics which leads to production efficiency and long-term value creation. 4. The stakeholders involved within the ESG ecosystem inculcate mutual trust, credibility, and reputation among each other. How ESG Improves Financial Performance ESG in corporate management gives better Return on Equity (ROE) and Return on Assets (ROA), higher stock price, and smoother business operational efficiency. The improved business financial performance includes: 1. Research shows that 70%+ consumers are willing to pay more for green products.

6. 2. Reduced operational costs, resource efficiency and waste reduction. 3. DEIB benefits (Diversity, Equity, Inclusion and Belonging) are needed to create higher job satisfaction and worker productivity. It helps attract the best talent. 4. Heightened productivity due to better employee engagement, and retention. 5. Attractive to capital investors across the globe. 6. The company can anticipate changes and roadblocks and adapt forth with market demands. How to Implement an ESG Strategy? 1. Ensure commitment on all levels 2. Assess your current state. Communication, implementation and accountability help uphold responsiveness. Make healthy and reliable communication channels 3. Set ESG goals: SMART goals (Specific, Measurable, Achievable, Relevant and Time-Bound) 4. Set KPIs and document your progress based on ESG standards. Recommendations for Customizing an ESG Approach for Businesses 1. Conduct a Materiality Assessment to find the Most Important Environmental, Social, and Governance issues.

7. 2. Align ESG with Business Strategy to align with long-term goals. Identify the synergies and develop upon them. 3. Set Clear and Measurable Goals considering your company’s resources and capabilities based on emerging demand. 4. Keep the stakeholders engaged throughout the ESG implementation process. Ask for input and feedback from the whole spectrum of stakeholders to ensure inclusivity and transparency. 5. Integrate ESG into the Governance Structure by ensuring a fair representation of stakeholders as board members and senior executives. Make them active members in terms of participation and decision-making. 6. The importance of ESG in work culture is undeniable, embedding ESG into the culture is where the crux of development lies. Cultures create a future that values sustainability. The management must solve ESG issues at the human level first (from the employee’s perspective). Necessary training and development is necessary to educate and empower employees. Monitor and evaluate performance to reward human behavior that lines up with ESG goals. Keep refining your strategy based on relevant factors. Find the Most Important Environmental, Social, and Governance Issues

8. Environmental issues 1. Global warming and related natural calamities 2. Resource depletion due to unsustainable means of usage. 3. Pollution due to wastage and irresponsible waste disposal. 4. Non-renewable depletions. 5. Hydric stress and the protection of biodiversity. Social issues 1. Discrimination and exploitation of human and their labour. Inequality, inhuman working conditions, and human rights issues. 2. Product safety, community relations, and supply chain transparency issues. Governance issues 1. Lack of diplomatic conclusions in case of conflicts of interest. 2. Lack of representation and accountability issues. 3. Transparency, and ethics violations. Create Specific & Achievable Objectives ESG issues when identified can help find the objectives to be met. Establish the SMART criteria (Specific, Measurable, Achievable, Relevant, Timely) to focus on your ESG initiatives, making it easier to track progress. Some achievable ESG goals are —

9. 1. Reducing the emission of greenhouse gas by 20% by 2025 2. To achieve a net-zero waste to landfill by 2040 3. Increase diverse leadership roles by 30% by 2025 4. Improve job security and expand workforce diversity Implement ESG Principles into Your Company’s Culture Implementing ESG Principles into your company culture helps enhance the human centered approach as it fosters a culture that prioritizes environmental stewardship, social responsibility and ethical governance. When a community gets a common cause, it brings out a shared sense of purpose and responsibility that drives positive change and ensures alignment with your broader ESG goals. Conclusion ESG is very important for contemporary businesses to survive on the long run especially in this interconnected world. It is a three way process of environmental, social and governance considerations to finally culminate into age-long reputation and heightened financial performance. ESG leads us to a better society and world in general.

10. FAQ Why is ESG more important now than ever? We are at the peak of environmental hazards with ozone depletion and overconsumption of natural energies. Social hazards are no less; the society is saturated with corruption, social inequality and malpractices. Global growth of societal and environmental awareness are nurturing every stakeholder involved on a human level and promises long-term financial performance, embarking on the importance of ESG. How does ESG create value? How does ESG create value? ESG leverages human ethics, environmental sustainability and robust societal governance to generate its value. It encourages strong interpersonal relationships and healthy competition. What is the goal of an ESG strategy? The goal of an ESG strategy is to create a sustainable culture that provides a far-sighted investment model. This strategy gives businesses resilience, adaptability, sense of societal welfare and ethical governance. Is ESG a new concept? The importance of ESG in business is a real thing and it has been around for decades. Simply! No, it is not. It gained its name recently.

11. Satyamedh Nandedkar, a seasoned finance professional, holds ACCA, CA, US CMA & CS credentials. With 10+ years of experience, he’s a master ACCA tutor, IFRS trainer, adept in global financial standards, and a trusted advisor in navigating complex financial landscapes.