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Why Every Business Needs to Take ESG Seriously

Environment & Sustainability, and Social & Governance (ESG) Reports have long been words you just threw around to sound like you care about the environment because it sounded cool. Now the environment allows you no choice but to take it seriously because of the alarming global warming. The heatwaves, the floods, and the fact that the temperatures will only rise each year and this might be the coolest year of our lives, are hard to wrap minds around and scary to the highest degree. It’s about time companies got serious about their role in deteriorating the environment and the steps they are taking to reverse the damage. 

The Origin of the Term ESG 

The early days of ESG can be traced back to the 1960s and 1970s when Socially Responsible Investment(SRI) gradually started gaining popularity. SRI meant selecting investments based on the company’s social and environmental impact along with its financial performance. In the 1980s, the term Corporate Social Responsibility (CSR) gained popularity as investors got serious about the company's impact on society and the environment. It was only in the 2000s that the term ESG came into existence. Earlier, ESG reports were niched and done by a select few companies. But, today ESG reports are a vital part of investment analysis, as investors seek to back socially responsible, sustainable, and financially sound companies. 

In its recent report, Gartner predicts that broad-based ESG reporting requirements will be in place by 2025. Organizations must now evolve their ESG initiatives from compliance-driven efforts to strategic programs that integrate the organization’s environmental, social, and governance priorities. 

Awareness of ESG in firms 

Companies are increasingly becoming more aware of the importance of ESG partly because strong ESG performance can lead to better risk management, enhanced reputation, and improved financial performance. 

Many financial lending and investing companies integrate ESG criteria into their lending and investing process, encouraging companies to improve their ESG performance. 

Breathe ESG, explains that between 2020 and 2022 alone, ESG reporting among India’s top 1000 companies increased by over 160%. This growth was further catalyzed by Finance Minister Nirmala Sitharaman who emphasized the need for chartered accountants to incorporate carbon, CSR, and ESG practices into their services. 

Roadblocks in ESG services 

Many companies need help to collect comprehensive and accurate ESG data. The rapidly evolving regulatory landscape is only increasing the uncertainties for companies to stay compliant.  

There is a need for more education, and training programs to help companies understand and implement ESG practices effectively. There is already a shortage of skilled professionals with expertise in ESG, so educating more people about ESG best practices is paramount. 

There are many cost-related challenges, as ESG reporting can be expensive especially when companies cannot see the immediate financial benefits of investing in ESG. Many companies still perceive ESG and Sustainability as compliance costs.

Another interesting challenge with ESG is that the ESG responsibilities reside with multiple stakeholders, creating confusion and making it hard to adhere to ESG compliance. Let’s hope that businesses understand that climate change is directly related to their profits and hence, needs immediate attention.

(Author: Karishma is a Content Writer at TechDoQuest. She offers fresh and youthful perspectives on whatever she writes about)

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