You’ve likely already heard the term ESG. Maybe it came up in a meeting or you saw it on your company’s website. Or perhaps you’ve stumbled across it in an article. You know it has something to do with performance and sustainability, maybe even diversity and inclusion.
But what does ESG really mean?
At its most basic level, ESG stands for Environmental, Social, and Governance, and it is the disclosure of environmental, social, and governance data, which increases stakeholder transparency in order to reduce risks and identify opportunities. ESG covers a spectrum of business aspects that financial analyses might not traditionally consider, yet often do have financial relevance for businesses. A failure to measure ESG exposures could result in significant financial losses.
The ESG acronym was coined in the mid-2000s in a report facilitated by impact investing expert Ivo Knoepfel, titled “Who Cares Wins.” In it, Knoepfel argued that ESG factors in financial analysis should be accounted for in capital markets since they help identify risks, impact the evaluation of a business, and lead to positive social change.
The report came after former UN Secretary-General Kofi Annan invited over 50 CEOs to participate in a joint initiative under the UN Global Compact, with the support of the International Finance Corporations (IFC) and the Swiss Government, to find ways for the financial industry to incorporate environmental, social, and governance into capital markets. The goal was to quantify social impact, paving the way for responsible investing.
The Three Main Criteria of ESG
Now that you know what the acronym stands for and where it comes from, let’s break down what each criteria actually means!
- Environmental: The environmental aspect of ESG examines how a business or organization operates as a steward of our natural environment, focusing on all aspects of sustainability, including waste and pollution, resource depletion, greenhouse gas emissions, deforestation, climate change, and more.
Businesses have come to recognize that unless they act responsibly as members of the global community, they will only worsen the effects of climate change, putting not only our planet but also their ability to operate at risk. Instead of viewing environmental harm as an inevitable consequence of business operations, more and more businesses are recognizing that now is the time to be part of the solution.
- Social: Within ESG, the social criterion examines the impact an organization’s operations on the labor and human rights of its employees and other community members, encompassing everything from diversity and inclusion efforts to employee volunteer hours, workplace conditions, and pay parity and equity. The environmental aspect of ESG can often outshine the social or governance aspects, since an organization’s impact on the environment is more easily quantifiable. But an organization’s impact on workers and employees is essential in reducing risk and ensuring the business runs responsibly.
- Governance: The governance aspect of ESG aims to examine how a corporation polices itself or how a company is governed. While the environmental and social aspects are relatively straightforward, the governance aspect tends to garner the most confusion.
Responsible governance within a company encapsulates efforts related to transparency, accountability, and compliance. This includes using accurate and transparent accounting methods, pursuing diversity in selecting its leadership while avoiding conflicts of interest, accountability to shareholders, avoiding any illegal activity, and more. Relationships with stakeholders are key to governance initiatives, as the organization works to garner trust through transparency and accountability.
While the acronym encourages breaking reporting into three distinct criteria, environmental, social, and governance are all just referring to material risk factors that have value regardless of the overarching criteria. For example, carbon outputs and fair compensation are important risk factors irregardless of referring to them under the “environmental” and “social” categories.
Historically, social and environmental efforts were thought of more as an aside to daily business, but ESG reporting has become increasingly important to the business model, as it aims to reduce risk and increase corporate accountability. Employees, investors, customers, and other stakeholders are increasingly holding companies accountable for their impact on the environment and human rights, which has resulted in corporate sustainability reporting becoming the standard for corporations.
What Does an ESG Framework Look Like at World Wide Technology?
Technology service provider and Global Citizen campaign partner World Wide Technology (WWT) is committed to its ambition to Make a New World Happen by taking care of the people and communities it serves by fostering a safe, inclusive and environmentally-conscious workplace.
Its mission is to continually improve the organization's social and environmental performance to ensure continued growth, profitability and recognition of WWT as a leader in its industry and a Great Place to Work for All.
WWT’s Environment, Social and Governance program focuses on three main areas, coinciding with environmental, social, and governance reporting figures: the planet, people, and responsible business.
WWT is committed to managing its use of natural resources to support a sustainable future. Key aspects include energy conservation, waste management, and water conservation. Just last month, WWT announced its commitment to sustainability by signing onto the United Nations-led Race to Zero campaign, in line with the Science Based Targets initiative (SBTi) as a part of Global Citizen’s End Extreme Poverty NOW campaign. WWT committed to set near-term, company-wide emission reductions in line with climate science and to achieve net zero emissions by 2050, across all its global locations.
WWT is thrilled to announce that we have signed onto the Race to Zero by setting near-term and long-term climate targets in line with the Science Based Targets initiative as a part of @GlblCtzn’s 2022 #EndExtremePovertyNOW Campaign! pic.twitter.com/rURcmuOUYt— World Wide Technology (@wwt_inc) August 2, 2022
WWT focuses on employees by supporting an inclusive and diverse workplace that is a Great Place to Work for All,” which includes a dedicated diversity and inclusion team, employee resource groups (ERGs), mental health support and more. WWT’s Position on Human Rights outlines its commitment to protect the human dignity of employees around the world through safe and fair working conditions.
In addition to upholding human rights standards for employees as a part of their ESG framework, WWT’s People pillar encompasses its efforts to benefit people within the greater community. WWT prioritizes giving back to local communities by aligning with organizations that share the same Core Values, including the American Cancer Society, Urban League, Covenant House and more. Its Global Community Impact program is designed to support organizations with a focus on career readiness, human services and health and wellness, such as social justice and physical and mental well-being.
The company also empowers employees to give back to their local communities by offering a Day of Caring, in which employees are encouraged to take a day off to volunteer and get involved with a nonprofit of their choosing.
As a technology services provider, responsible business practices are essential. WWT is consistent in detailing its core values, holding itself to the highest standards of “honesty, integrity and trust.”
WWT’s executive management regularly emphasizes and demonstrates these core values to employees, and each employee annually reaffirms their accountability to this mission, ensuring that they remain at the foundation of business operations.
The core values are upheld through numerous frameworks, including the WWT Enterprise Risk Management (ERM) Program, aimed to identify and manage risks that could have a material impact on its ability to achieve its strategic objectives across the entire organization, and WWT’s Business Resiliency Program, designed to minimize exposure to threats and risks and enhance the ability to restore business in a timely manner.
Other aspects of responsible business core to WWT are its key safety management principles, WWT Global Security Team, and WWT Global Security Capabilities statement aimed to empower a “Safety Always” culture.
“WWT is committed to investing in the future we want – and technology sits at the center,” WWT General Counsel and EVP of Compliance Erika Schenk said. “We will make a new world happen through sustainable and responsible business practices.”