ESG is an approach that has its roots in the financial sector. It means ‘environmental, social and governance’ and essentially relates to two things: ESG investing and ESG reporting.
For investors, ESG is about considering the material risks associated with an organisation’s performance, commitments and objectives in areas like its impact on the environment, (and the environment’s impact on its business), social issues, the way it treats people, its supply chain, equality and diversity, and how it runs its operations. That approach may lead to investors screening or excluding companies that don’t meet certain standards.
ESG isn’t just about risk management, however. It is often seen as a way to align values between investor and investee, with an ESG framework or standard that helps people measure and compare performance.
For businesses and borrowers, ESG is about measuring, managing and reporting performance in a robust, clear and consistent way. This requires upfront work to ensure you have the right data, strategy and processes in place, as well as a communications approach that is catered for your key audiences – including a common language with investors.
Many now see ESG as having the potential to go further and do more. Businesses are increasingly using ESG to tell a wider range of stakeholders and the world about their values and how they’re measuring up when it comes to people, place and planet. However, a key element that makes ESG credible is robust measurement and reporting.
Why does it matter to housing and the built environment?
Everything starts with a society wanting a change, government wanting to act and companies distributing the solutions widely. There is an opportunity for the built environment – participation in the transition and being part of the solution.
The core sectors that Social works across – housing, regeneration, property, infrastructure, local government – are a natural home both for ESG-driven investment and socially responsible investment (SRI).
ESG can and should be more than a reporting tool. To be fully effective, and to carry weight, it should be embedded in an organisation’s culture, strategy and processes.
At present, ESG is also an opportunity to align aspirations with those of responsible investors, tap into a wider investor pool, open up markets such as sustainable finance and investment, and benefit commercially from the competition all of that brings.
However, ESG really should be seen as a bare minimum if you are an organisation with purpose. The end-game is an industry that places even greater value on positive environmental and social impact.
The ESG movement
Many would argue that the ESG ‘movement’ has already arrived in the mainstream. However, the reporting process requires evolution, harmonisation and standardisation.
More businesses are using it to reflect on their own performance and seeing it as something they should embed in their processes and culture. In some cases, it’s already bringing together strands of their business – or people in their business – who may have been looking at their business from quite different perspectives.
But it can also be used to help frame their narrative, talk about their values and tell their story in a more cohesive and compelling way than they ever have done before.
Kim Goodall, consultant, Social Invest