ESG: everything you need to know to get your bearings
Specifically, the ESG must primarily be traced back to a series of measurement criteria. Criteria that take the form of a set of operating standards which must inspire the operations of a company to guarantee the achievement of certain environmental results, at social and company governance level. These are criteria that are then used by investors to evaluate and decide their investment choices.
The ESG phenomenon is recent but draws its sap from roots that are deeply rooted in time and in the economy. The acronym ESG dates back to 2005 and it can be said that only a few years ago reporting has become sufficiently broad and detailed to allow for statistical analyses.
With respect to the logic of evaluation, the criteria that underlie the letter “E” of Environmental are environmental criteria and evaluate how a company behaves towards the ‘environment in which it is located and the environment in general.
The criteria linked to the letter “S” relate to the social impact and examine the impact and the relationship with the territory, with people, with employees, suppliers, customers and in general with the community with which they operate and with which they are in relationship.
Finally, the “G” of Governance concerns the issues of company management inspired by good practices and ethical principles, in this scope the issues under examination concern the logic linked to the remuneration of executives, respect for shareholder rights, transparency of corporate decisions and choices and respect for testimonials.
ESG principles: why they are so important
The ESG principles are important because they allow the company’s environmental, social and governance performance to be measured precisely and on the basis of standardised and shared parameters.
For a long time, the social, environmental commitment and good governance practices of an organization have represented a completely free and independent choice on the part of the organizations and thus their representation and actual communication.
The results obtained were represented on the basis of choices and logics linked to each reality and could not be measured or compared to those of other companies and could not be the subject of objective evaluations. ESG principles are important because they make it possible to lead back to objective and shared measurement criteria.
ESG: a corporate path that starts with sustainability
To address and understand the issues that underlie the ESG principles it is necessary to be very clear that these principles are implemented starting from three major themes, closely related to each other:
- awareness of the limits related to the environment
- resource management
- sustainability, i.e. respect for the environment and for any context characterized by limited resources
One of the starting points dates back to the 1970s and concerns the work of the Club of Rome at MIT and which materialized with the report “The limits of growth “. The importance of this report is to be read, today more than ever, in the scope of its primary message, namely that it is neither reasonable nor even possible to think of continuing towards “infinite growth when our planet is made up of natural resources non-renewable“.
In that same historical period (it was 1972) the first conference on the environment of the United Nations, which gave rise to the Stockholm Declaration where the concept that “all human beings have the right to have access to satisfactory living conditions, in an environment that allows them to live in dignity and well-being“.
This is where the path towards sustainable development issues starts, which experienced an important stage in 1987 when the World Commission for the Environment and Development of the United Nations shared the report on “Our Common Future” which seeks a synthesis between development and sustainability.
Where do ESG assessment metrics come from?
ESG principles are therefore not new and are active and shared by communities, businesses and organizations attentive to issues and environmental and social sustainability and good company management practices.
Their importance has grown sharply as these criteria are used by the financial community to measure, evaluate and compare the environmental, social and governance performance of companies alongside their conventional business performance.
The world of finance has begun to show high evaluation of ESG criteria, first of all for the management of various forms of investment that are inspired by social and environmental responsibility criteria and which address related objectives the environment, the social dimension and governance inspired by ethical principles.