Business Focus
The importance of the in E Predominantly “E” ESG, which stands for “Environmental, Social and Governance”, has been at the centre of attention lately, together with the rising interest in sustainability and sustainable practices for companies and individuals. There has been a significant increase in the amount of data collected relating to sustainability, and every industry is attempting to align on what the ESG approach mandates. As increasingly more companies are praising their management for implementing sustainable plans into their business models and allocating bonuses according to ESG reports and performances, sustainability practices and disclosure can no longer be neglected. According to CNBC, most of the companies who adopt ESG factors in their investment analysis tend to focus predominantly on the E as the leading criteria for decision making. The increased interest in the carbon market and carbon credits reflects this trend, especially in the context of afforestation projects. Who hasn’t come across at
least one program which claims to save the planet by selling a tree to offset your carbon emissions? That is certainly a good idea to start, but there is simply not enough space on planet Earth to plant enough trees to compensate for everybody’s carbon emissions. What about the S, or social dimension of ESG? Not a lot of people or companies know that focusing on the S can help them save even more CO2 than simply focusing on environmental factors and, at the same time, support entire communities in addressing some of the biggest development challenges of our times.
An overlooked “S” The social sphere is often disregarded in discussions about offsetting and climate awareness, and it is also not taken into account from an impact point of view. “Planet isn’t necessarily more important than people, it’s just easier to measure. Investors like measuring things that they can put into their models, and carbon is easy to quantify.” This quote underlines how projects with a wider spectrum of impact can also produce carbon credits, and focuses the attention on the whole issue of including social practices into ESG reports through the so called “Social Impact Score”, which is meant
to predict the potential social benefits of an investment. So why exactly is the S overlooked? As the social element of an investment is more difficult to quantify, the world of impact investing seems rather risky to navigate, and the “S” tends to be disregarded. However, it can make a huge difference to the future of our planet and the fate of the climate crisis, as the E and the S are strictly and irrevocably interconnected. How so? As the developed world transitions towards a more stable, sustainable and greener economy and lifestyle, developing countries are still fighting for primary “benefits” such as access to electricity, or access to clean water. Climate change could cause extreme circumstances triggering an exodus of people migrating to more developed areas, looking for better living conditions and opportunities. Thus, if social development is not properly managed, the consequences can be incredibly disruptive. The consequences of climate change will certainly culminate in developing countries, as they are the ones who need to transition from rural to industrialised societies in a carbon friendly way, requiring significant resources and technologies to do so.
