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Understanding sustainability buzzwords: What is ESG?

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April Bridgeman

April Bridgeman, Managing Director and Senior Vice President, Hotel Solutions

If you’ve been paying attention to the latest business conversations, you’ve probably heard the term ESG.

The acronym stands for environment, social, and governance and it signals a shift in how companies approach corporate social responsibility (CSR) issues. In this post, we’ll break down the definition of ESG and begin to explore the implications for your business travel program.

What is ESG?

Traditionally, ESG is a framework that investors use to consider the social and environmental impact of a company. The key aspects of ESG are:

  • Environment – No surprise here, but this element focuses on the environmental impact of a company. It can incorporate everything from carbon emissions and energy efficiency to recycling practices, water pollution and supply chain sustainability.
  • Social – This area focuses on a company’s social impact in terms of relationships with employees, customers, suppliers, and stakeholders. This can cover everything from performance on diversity, equity, and inclusion (DE&I) metrics to how the company promotes good out in the wider community.
  • Governance – Finally, the governance piece centers around policies that balance financial goals with social and environmental responsibility and driving positive change. This can include anything from executive pay and political contributions, to tax strategy and diversity on the board of directors.

ESG structure and performance make a difference to a company’s ability to attract investment.  A CNBC report shows that a third of millennials are interested in the ESG approach of the companies they invest in, and 72% of Americans are at least moderately interested in sustainable investing.

ESG metrics: measuring success

While traditional financial reporting tells people only about the numbers, reporting on ESG says much more about a company’s values. These days, it’s wise to treat ESG reporting with the same rigor you do financial reporting. Here are some key areas of ESG that can be examined to determine success.

  • Environment – Greenhouse gas (GHG) emissions and carbon footprint; energy use in manufacturing and production; sustainable sourcing; water scarcity; air pollution; deforestation; waste production and management; management accountability for achieving environmental and climate goals.
  • Social – DE&I representation across leadership, management, and the rest of the company; employee wellness; mental health; community relations; the gender pay gap; employee retention and, where appropriate, retraining; worker conditions and corporate values among suppliers.
  • Governance – Representation of regularly excluded people at the board level; board’s oversight of the company’s climate strategy; executive compensation guidelines; hiring and onboarding practices; political lobbying and donations; and tax strategy.

Why is ESG important?

We know that ESG is something potential investors pay attention to, but that’s not the only reason it’s important. Creating and fulfilling ESG goals is about being socially and environmentally responsible, about being a good citizen in a business sense. Increasingly, these are issues that both your customers and your employees care about. Research from PWC shows that:

  • 86% of employees prefer to work for companies that share their values
  • 83% of consumers believe companies should be active in shaping ESG best practices
  • 91% of business leaders think that companies should take action on ESG issues

In addition, PWC’s 2021 consumer insights survey shows that half of consumers think about sustainability factors when planning purchases. The study also shows that 53% of consumers look at companies’ values and commitment to doing the right thing before purchasing. Factors such as supporting local communities, looking after staff wellbeing, having products with a traceable origin, and eco-friendliness are also important.

How ESG creates value

Adopting an ESG framework can make your business better. McKinsey & Co suggests that ESG creates value for companies through increased growth, reduced costs, improved productivity, reduced regulatory interventions, and improved investability. Because of this, ESG isn’t going away. Indeed, it’s likely to become more and more important.

If your company is publicly traded, you’re likely already reporting on ESG. If it’s not, you can still assess your performance on some of the key metrics cited above and begin your own internal reporting.

ESG and travel

When it comes to your business travel program, ESG requires a mindset shift. Many travel programs already consider their emissions impact, but focusing on ESG means thinking about the social impact of your program and its governance structure as well.

One of the best ways to approach this is to collect the right data that allows you to measure that impact across the board. For example, your travel data will help you forecast demand, see which trips have a useful business impact, keep track of emissions, look after employee wellness, assess your DE&I impact, and much more.

No matter what business you’re in, it’s a good move to build a focus on ESG, which is going to become even more important in the near future. To learn more about what this means for your business travel program, check out Advito’s sustainability practice. And find out how our employee engagement expertise can help you communicate your ESG initiatives to your employees to galvanize their support and improve affinity to your organization.

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