the business landscape has continually evolved mirring shifting societal expectations placed on corporations technology was actually one of the biggest drivers of this change accelerating the flow of information enhancing transparency in business operations and empowering individuals and firms to align their choices with their values and objectives in this segment we will explore how environmental social and governance considerations have been reshaping the world of business over the past decades and demystify some of the acronyms in this space most of us are familiar with the concept of corporate social responsibility or CSR which gained prominence in the 1960s
back then CSR was mostly associated with philanthropic actions such as charitable donations an employee volunteering in the last few decades companies have started publishing their Corporate social respons ability reports where they showcase their way of giving back to society today four decades later there's no globally accepted definition of corporate social responsibility however societal expectations have been evolving and redefining business practices that are acceptable or not for example in a historical context Industries like Agriculture and textiles leverage slavery to capitalize on inexpensive labor thereby maximizing their profits such a business practice although great for the bottom
line is of course no longer acceptable and labor costs are now absorbed by the businesses in those Industries the recognition that social factors environmental impacts and corporate governance practices are increasingly affecting business value led to the creation of ESG as a concept the term ESG was coined in 2004 in a United Nations sponsored paper who cares when WIS the paper argued that companies with better environmental social and governance performance can increase shareholder value while contributing to the sustainable development of the Societies in which they operate this intellectual Foundation remains largely the basis of ESG integration
across the world ESG is not a label or specific investment approach but rather a set of information data that complements financial data to provide a better understanding of business strategy value risk exposure and growth opportunities ESG data provides insights into how well a company is managing its environmental resources for example water or energy consumption addressing social issues for example Employee Engagement diversity policies and maintaining strong governance practices for example board Independence risk management and internal controls ESG data is generally classified ified into two categories material and non-material material ESG data which is of most interest
to investors and companies is considered relevant to company's financial performance business operations and overall sustainability corporate governance topics have been part of investment analysis for many decades environmental and social topics are relatively new in the financial world but increasingly gaining prominence for example Greenhouse gas emissions disclosure is becoming mandatory in many developed countries investors use the greenhouse gas emissions of companies that they invest in to evaluate their exposure to carbon price increases reputational risks and alignment with their greenhouse gas reduction targets the growing importance of environmental social and governance factors in business has spurred an
opposing movement known as anti-g anti-g arguments highlight concerns about Market distortions lack of standardization potential greenwashing uncertain investment returns linked to ESG commitments and the perception that ESG priorities May divert Focus from maximizing sharing or value the movement fails to recognize that ESG is just a set of information and depending on a company's sector and region this information may be financially material there are also multiple Global and Regional in iives to standardize ESG labeling and disclosures numerous academic Studies have shown that businesses that have better environmental social and governance practices are more resilient during market
downturns and perform better in the long term to wrap up ESG environmental social governance serves as the financial sector's terminology for evaluating the risks and potential rewards associated with a company or investment concerning environmental social and governance matters this evolution of expectations for businesses continues evolving from the Simplicity of corporate social responsibility or CSR to the all-encompassing wealth of ESG information it's a story of businesses learning to navigate through complex interconnected systems and align with a more sustainable [Music] future
