ESG 101: What Is Covered in Environmental?

Lou Raiola

Recently, ethOs President Ali Payne took a look at the overall concept of Environmental, Social, and Governance (ESG) — what it is, and how it soon will be impacting your company.

As an extension of that overall education on ESG and its framework, we wanted to dive a little deeper into what each of the letters truly stand for. We know they can be overwhelming, but it’s important to understand how each area plays a role in the standards that affect us all.

A Closer Look at Environmental

As mentioned above, E stands for Environmental and is meant to guide an organization’s measurement and reporting of overall sustainability. It also considers how an organization is performing as a steward of the natural and physical environment.

The primary focuses for organizations within the environmental criteria address energy and resource use (consumption),and emissions and waste (releases).

Criteria an organization may look at includes, but isn’t limited:

• Energy use
• Carbon emissions
• Waste management
• Water usage
• Pollution
• Natural resource conservation
• Treatment of animals

Environmental Risks to Businesses and Stakeholders

It likely comes as no surprise that climate change leads the environmental category in ESG, and globally, is the dominant topic when discussing environmental issues. In fact, 80 percent of the world’s largest companies are reporting exposures to physical or market transition risks associated with climate change, according to the S&P Global Market Intelligence.

Rising temperatures, a rise in sea level temperatures, wildfires, and other climate perils impacting physical assets (like an organization’s building) are key concerns to organizations.

At the same time, there are regulatory pressures and climate impact dependencies that may interrupt businesses — think public transportation, supply chain vulnerability, the energy grid, etc. And to top it all off, while it may not seem like environmental risks have anything to do with these areas, there’s also financial exposures, talent attraction and retention issues, regulatory implications, and reputational risks that all fall under Environmental.

The pressure from consumers, investors, employees, and communities on organizations to ensure they’re taking steps to reduce environmental risk is intensifying.

Consumers

Consumers are becoming more and more educated on environmental topics, and there is growing evidence that people are more focused on purchasing goods and services that positively impact the planet and society. People want to buy from companies who are trying to make a difference.

Investors

Trillions of dollars are being invested in companies practicing ESG, as the financial community believes such organizations will outperform those that do not adopt ESG practices. Simply put, clients want to work with companies who have ESG standards in place and this matters to the investors who plan on holding a stake in a company.

Employees

Employees want to work for companies that aspire to make a difference. In the battle to attract and retain top talent, environmental initiatives or commitments by an organization can be a key differentiator.

In fact, by 2029, Millennial and Gen Z employees will make up 72 percent of the workforce compared to 52 percent in 2019. These generations care about and want to work for companies that are committed to environmental and social concerns.

The vast majority (90 percent) of Millennials and Gen Z’ers  are making an effort to reduce their personal impact on the environment. They don’t believe government and businesses are as strongly committed. and many are pushing their own employers to take action.

Communities

With a focus on public interest, ESG policies are being adopted by federal, state, and local governments at a steady pace. To that end, on March 21, 2022, the U.S. Securities and Exchange Commission (SEC) — in a landmark proposal — stated it’s now recommending a rule that would require public companies to disclose climate-related information.

On top of this, states from California to New York are integrating ESG considerations into their investment and resiliency efforts. Environmental factors include green buildings, clean technology, water use, waste management, etc.

New York City local law 97 establishes emissions limitations for buildings requiring energy efficient retrofits is materially impacting construction and building operations. And, California has enacted a ban by end of 2024 on gas-powered lawn mowers and blowers while also looking to ban gas-powered cars and fleet by 2035.

ESG impacts are coming, and they’re coming fast.

The Importance of Embracing ESG

At ethOs, we embrace ESG as a guiding framework to always do what’s right, and our ethOs business is built on the foundation of helping you in all areas of your organizational and engagement journey.

In fact, when it comes to Environmentalism in ESG, we specifically focus on data and work with our clients to understand the risks that weather property damage, the negative impact on supply chains, business interruption, poor sustainability practices, etc. can have on them.

In today’s business environment, companies of all sizes are embracing environmental responsibility and sustainable practices as a competitive advantage opportunity that can positively impact the bottom line while enhancing the work environment. The tangible economic expenses of taking action on this area are substantial, but the expense of inaction is even greater. 

So, don’t wait to start. Reach out to us today for a consultation! We’re ready to help you with your ESG journey.

May 25, 2022