Environmental, social, and governance (ESG) factors are non-financial metrics used by investors to make informed decisions. Though the term “ESG” was coined only twenty years ago, many of its concepts were already part of investment analysis because they influence a company’s long-term success.
Today, standards and frameworks exist to help provide consistent data and greater transparency. As these frameworks evolve into regulations, ESG has become a permanent part of how businesses and investors operate.
ESG builds on a long tradition of socially responsible investing, which began in the 1970s. Over time, investors realized that risks like human rights violations and environmental damage could affect portfolio performance.
In 1997, the Global Reporting Initiative (GRI)[1] launched a framework for sustainability reporting, helping make data more consistent and comparable. The term “ESG” first appeared in the 2004 “Who Cares Wins”[2] report by the UN Global Compact, which encouraged integrating these factors into investment analysis.
Since then, numerous organizations have introduced their own reporting frameworks, often called the “alphabet soup” of ESG. This variety has made it hard for companies to choose the right approach and for investors to compare data.
To address this, the International Sustainability Standards Board (ISSB) was created in 2021. In 2023, it released the IFRS S1 and IFRS S2 Sustainability Disclosure Standards[3], combining existing frameworks into a global baseline for sustainability reporting. Over thirty countries are expected to adopt them.
As more governments pursue climate goals, capital will continue flowing toward sustainable assets. ESG reporting helps ensure transparency on where that capital goes and what activities it supports.
[1] The history of ESG: A journey towards sustainable investing, Tom Krantz, 8 February 2024
[2] Who Cares Wins Connecting Financial Markets to a Changing World, The Global Compact, December 2004
[3] About the International Sustainability Standards Board, IFRS Foundation 2024
ESG reporting gives investors the data they need to make informed choices. Some funds use it to meet goals like decarbonization, while others use it to identify and manage risks.
By disclosing how they assess risks and opportunities, companies show how prepared they are for future challenges. This transparency helps investors decide whether to invest and how to manage potential risks.
ESG integration isn’t just about compliance—it can drive growth. Some companies use ESG to strengthen their business model or reach new markets.
For example, certifications like ISO or EcoVadis can enhance brand reputation and attract loyal customers. ESG efforts can also inspire innovation, leading to new products, services, and technologies that help companies stay competitive and adaptable.
Managing resources efficiently can lower costs as well as emissions. Reducing material use, improving waste management, or installing energy monitoring systems can all lead to long-term savings.
After initial investments, projects like renewable energy or leak detection systems often pay off through reduced utility and maintenance costs. Staying compliant with EHS and ESG regulations also helps avoid fines and disruptions.
Strong ESG programs help companies attract and keep top talent. Many employees—especially younger generations—want to work for organizations that share their values.
In fact, 75% of U.S. executives[1] say ESG initiatives boost employee engagement. These efforts foster a positive culture, support diversity and inclusion, and create workplaces where employees feel valued and motivated to stay.
[1] Survey: ESG Strategies Rank High with Gen Z, Millennials, Kathy Gurchiek, 21 March 2023
Investors increasingly seek funds that perform well while advancing social or environmental goals. Companies that focus on decarbonization, human rights, or waste reduction are more likely to attract this capital.
Green loans and sustainability-linked financing give these companies an edge, helping fund projects that benefit both the business and the planet.
Customers—whether individuals or other businesses—expect companies to align with their values. In complex supply chains, this means choosing suppliers with low-carbon operations and ethical practices.
Consumers are also more conscious of how their purchases affect the world. Many are willing to pay more for sustainable products. Engaging with stakeholders helps companies understand these expectations and strengthen customer trust.
Sustainability means being able to operate successfully over time while minimizing harm to people and the environment. To do this, companies must stay flexible and ready for change.
New regulations, shifting markets, and evolving climate risks can all impact operations. Integrating ESG into overall strategy helps businesses adapt, reduce exposure to risk, and stay resilient for the future.
Sustainability means being able to operate successfully over time while minimizing harm to people and the environment. To do this, companies must stay flexible and ready for change.
New regulations, shifting markets, and evolving climate risks can all impact operations. Integrating ESG into overall strategy helps businesses adapt, reduce exposure to risk, and stay resilient for the future.