What Is ESG?

Environmental, Social, and Governance (ESG) Programs are designed to help companies increase their societal value by looking beyond financial goals to include opportunities and manage risks around environmental sustainability and social responsibility issues. ESG proponents believe that businesses that understand their impact on humanity and take action to address critical ESG issues will set new standards of excellence and be rewarded by their customers, employees, and investors.

ESG Programs address three aspects of corporate performance:

• Environmental aspects include living within planetary boundaries, covering topics such as greenhouse gas emissions, circularity, and land and ocean use.
• Social aspects encompass committing to equitable outcomes—covering topics such as human rights; health and wellness; and diversity, equity, and inclusion (DEI).
• Governance aspects focus on demonstrating responsible conduct, covering topics such as business ethics, third-party relationships, and tax practices.

How Are ESG Programs Implemented?

Environmental, Social, and Governance Programs require managers to:

• Build leadership commitment
• Develop the case for change informed by understanding company externalities, future-back industry trends, and societal movements
• Analyze and harmonize the needs of all stakeholders, including customers, employees, business partners, local communities, and investors
• Define the ESG Program’s vision, goals, and implementation plan
• Design and implement initiatives to support ESG goals
• Incorporate ESG into corporate development and innovation processes to identify, launch, and scale new ESG businesses, products, and services
• Establish systems, processes, and partnerships to measure and report progress on achieving ESG goals

Related Topics

• Climate Strategy

• Corporate Social Responsibility

• Decarbonization

• Diversity, Equity, and Inclusion

• Stakeholder Strategies

 

What Are the Common Uses for ESG Programs?

Companies use ESG Programs to:

• Differentiate their positioning with customers and generate increased sales through an enhanced value proposition
• Reduce costs through more efficient resource use
• Attract and retain talent
• Improve access to capital, increase the company’s valuation, and strengthen investor relationships
• Capture opportunities with new technologies, business models, and ventures
• Reduce reputational, legal, and financial risks

• Selected references (click to expand)

  Bernstein, Stella. “ESG Program Maturity: Four Stages.” Forbes, January 3, 2022.

  Dathe, Tracy, et al. Corporate Social Responsibility (CSR), Sustainability and Environmental Social Governance (ESG): Approaches to Ethical Management. Springer, 2022.

  Eccles, Robert G., et al. “The Board’s Role in Sustainability.” Harvard Business Review, September–October 2020.

  Hitchcock, Darcy E., and Marsha L. Willard. The Business Guide to Sustainability: Practical Strategies and Tools for Organizations. Routledge, 2015.

  Kaplan, Robert S., and Karthik Ramanna. “Accounting for Climate Change.” Harvard Business Review, November–December 2021.

  Kramer, Mark R., and Marc W. Pfitzer. “The Essential Link Between ESG Targets & Financial Performance.” Harvard Business Review, September–October 2022.

  Nassos, George, and Nikos Avlonas. Practical Sustainability Strategies. Wiley, 2020.

  Rezaee, Zabihollah, and Timothy Fogarty. Business Sustainability, Corporate Governance, and Organizational Ethics. Wiley, 2020.

  Savitz, Andrew. The Triple Bottom Line: How Today's Best-Run Companies Are Achieving Economic, Social and Environmental Success—and How You Can Too. Jossey-Bass, 2014.

  Serafeim, George. “Social-Impact Efforts That Create Real Value.” Harvard Business Review, September–October 2020.

  Winston, Andrew S. Net Positive: How Courageous Companies Thrive by Giving More Than They Take. Harvard Business Review Press, 2021.

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