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December 8, 2021

ESG and why does it matter in 2022?

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What is ESG and why does it matter in 2022?

Sustainability is on the global stage like never before. With climate change as one of the major challenges of our time, the UN’s 26th United Nations Climate Change conference, held in Glasgow, Scotland, saw renewed commitments to a sustainable economy and a better future.

Indeed, regulators, investors and businesses are adopting ESG (Environmental, Social and Governance) and sustainability initiatives and action plans at a fast pace.
What Is ESG And Why Does It Matter In 2022?

ESG defined

So what does ESG mean? Environmental, Social, Governance (ESG). ESG and the broader drive towards a sustainable, resilient and inclusive economy is the most critical trend of our time. As consumers, regulators, investors, governments, businesses and institutions address climate change and march towards a better future, organizations can use good business as a force for good. The concept is to ensure that as a society and economy, the use of natural capital (resources from the earth), social capital (humanity, society, relationships, culture and knowledge) and economic or financial capital (finance, production and infrastructure) is in such a way that it can be maintained (not depleted) for current and future generations.

Indeed, regulators, investors and businesses are adopting ESG (Environmental, Social and Governance) and sustainability initiatives and action plans at a fast pace.

ESG & sustainability matters in 2022

  • Nielsen research show that 66% of consumers would spend more for a product if it came from a sustainable brand
  • Willis Towers Watson found that 92% of consumers are more likely to trust a company that supports social or environmental issues, and 88% of consumers are likely to be more loyal to such companies.
  • Mercer found that ESG can help attract talent, particularly younger generations (key as “By 2029, the Millennial and Gen Z generations will make up 72 percent of the world’s workforce”)
  • The Governance & Accountability Institute shared that 90% of the S&P 500 index now publish sustainability reports

ESG topics relevant in 2022

Environmental topics include energy, emissions, waste, papers, plastics, metals, minerals, recycling, water and more. Key examples are the drive towards green (renewable or zero emission energy) and the sustainable use of materials (packaging or product).

Social topics include culture, inclusion, diversity, ethical sourcing, safety, training and more. Key examples are the drive towards broader and deeper talent pools from diversity, ethical sourcing (e.g. fair trade, conflict-free) and inclusive vendors (e.g. minority owned, social enterprises).

Governance topics include resiliency, data security, privacy, risk & controls, ethics and more. Key examples include the growing focus of fair use of online and mobile data and organizations having clear ESG & sustainability commitments, goals and plans.

ESG highlights from the wider economy

Investors & markets
  • Sustainable bond issuance is expected to hit $1 trillion in 2021, with global dedicated ESG equity funds over $2 trillion by year-end
  • Over 80% of investors attach real importance to ESG considerations, with 85%+ more likely to hold an investment based on strong ESG performance
Corporate adoption
  • More than 90% of the S&P report on ESG, and 75% of the world’s largest companies have ESG initiatives with an increasing view to supply chain participation.
  • Though ESG adoption and understanding is growing, just 13% of boardshave robust oversight of ESG issues
Growing regulation
  • SEC created a Climate and ESG Task Force in 2021. 
  • NASDAQ issuing new guidelines and rules around diversity.
  • Major changes and restructuring of sustainability and ESG related regulators and standards in 2021.
  • Increased commitments and changes from UN and international pacts.
  Increased demand
    92% of consumers are more likely to trust a company that supports social or environmental issues, and 88% of consumers are likely to be more loyal to such companies.

Is this bad for business?

Ultimately, businesses need healthy long-term markets for their ongoing success. Working towards a sustainable and inclusive economy through ESG and other initiatives is fully in the general interests of business. More specifically, ESG and sustainability can be an excellent business play. Organizations can gain cost efficiencies, create business value and market differentiation from the right approach to ESG. Retaining existing customers, winning new customers and bringing differentiated offers to market.

Taking ESG & sustainability action in 2022

Ensuring that your organization has an approach to ESG & sustainability that is relevant to your mission, your customers and provides business value from growth, cost efficiencies, market differentiation and brand reputation is critical. Not sure where to start? Third party ESG partners such as Veritrove can provide best practices and business cases; schedule a free chat with us around your ESG and sustainability journey with us.

About the Author

Matthew Wheatley

Founder

Matt has around two decades experience including CRO & VP leadership roles (revenue generation, strategy, change and P&L responsibility) in Fortune 500 and private equity energy services and energy technology businesses.

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