What is the ESG model?

ESG are acronyms that describe the criteria used to evaluate how a company affects and performs in the environmental (E), social (S) and governance (G) areas. These terms are commonly used in the investment and regulatory fields.

• The term "E" for environment refers to practices related to natural resource management, climate change and interaction with the planet.

• The "S" in social refers specifically to human rights, labor standards, diversity, equality, inclusion, and relationships with society and local communities.

• The "G" of governance is linked to the structure and good governance of the company, business ethics, fight against corruption, collective action, transparency and decision-making.

  
  

Despite being the least addressed topic at present, the UN Global Compact urges companies to broaden their focus in this area, considering both its internal and external impact, and its role in strengthening ethical leadership within the sustainability agenda.

Would you like to know the relationship with the 2030 Agenda? Check out the article "ESG criteria and their relationship with the SDGs".

There are countless benefits to implementing ESG criteria in business strategy, as they offer a classification of business sustainability. According to our business survey Contribution of Spanish companies to the 2030 Agenda, 79% of the 2,500 organisations questioned consider sustainability to be a competitive advantage. The way of doing business based solely on economic profit is outdated and the rise of sustainable businesses, which cover the internal aspects of the company, but also the supply chain or relations with society, indicate an irreversible path for companies that want to have a future, whether they are SMEs or large companies.

The latest study of global CEOs provides data on this subject, such as that almost all (98%) agree that sustainability is fundamental to their role, a sentiment that has grown by 15 percentage points in the last 10 years of the study. Or that CEOs are already integrating sustainability into their companies by launching new sustainable products and services (63%), improving the collection of sustainability data in their value chains (55%) and investing in renewable energy sources (49%).

From this point of view, the benefits for companies are broad, such as: talent retention, meeting consumers with values, access to new markets, cost savings, better reputation, business options with other companies or working in sector alliances.

But among the most notable advantages for companies that combine the acronyms ESG or ASG are those that have to do with investors and regulators, because they are linked to sustainable investment and the measurement of profitability. More and more capital markets - including large institutional investors - evaluate the results of companies in environmental, social and corporate governance (ESG) issues.

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For example, inefficient management of areas related to climate change, water, human rights or the fight against corruption can negatively affect companies and put their credibility and reputation at risk.

Companies that proactively manage ESG risks and opportunities are more likely to achieve better financial results over the long term. This makes them better investments. Transparent companies build trust and contribute to a strong and fair market. They can also enjoy strategic growth opportunities.