What Is All the Hype Around ESG?

In the last couple of years, the conversation about how companies should transform (especially considering what happened during the pandemic) suddenly began occupying several spheres. Companies in this day and age are starting to address issues like the health of their employees, the environment, social justice and the impact from their business activities. These considerations are becoming increasingly relevant and key to business operations. Their employees are asking for different things than they did just three years ago. Reports about our impact on the environment, such as the recent report from the IPCC (Intergovernmental Panel on Climate Change), have also raised our concerns about climate change and all the efforts around decarbonization to mitigate risks and take action on the Paris agreement. These calls for clear action are changing from a “nice to have to a must-have action plan.”

Strategies like ESG (environmental, social and governance) are now in the conversation with more force than ever. In 2020, investment in sustainability increased from 10 percent to 36 percent, according to the CCFV (Consejo Consultivo de Finanzas Verdes) in Mexico. We now have equity bonds, environmental bonds and gender bonds, which means that investors and governments along with the private sector are waking up to the fact that we have to take action together to tackle huge issues, such as the pandemic, social equity or climate change, from several perspectives, coming together for the solutions needed. 

So why is ESG in the conversation with such force?

It is simple: companies need a plan. We need goals and objectives to tackle the challenges at hand but we also need metrics to understand how we are doing. Investors are getting savvier and have more concerns regarding where they put their money. They are asking questions regarding companies’ responsibility in relation to the environment, social aspects and the transparency of their governance to avoid corruption.

It used to be that only listed companies needed all these reports, plans and commitments. Now, all industries of all sizes are being asked to report on their strategies for ESG. Europe has just released its new taxonomy, which is a sign of what is coming for Mexico and the Latin American market. Now, companies of all sizes need to start thinking about their strategy for implementing ESG, reducing their risk, protecting their reputation and their accountability. These will define how the financial sector considers value and credibility. ESG is an answer to the question, how are the companies going to demonstrate that they are part of the solution and not the problem?

Time is up. There are so many benefits that have made ESG a great strategy for business. From cost reduction to lowering compliance risks to enhancing the workforce through retention of talent, having a holistic plan strengthens companies and helps them to clarify their goals. It is important for every company to pay close attention to these trends because they are here to stay. Starting an ESG journey will help us create a path to a resilient future.