What Is ESG, and Why Is It Important?

Only recently did the public get used to Sustainable Development Goals (SDGs) and even picked the ones that are most important to them. Yet there is already a new environment-related term in town. I'm talking, of course, about ESG, which is an acronym for environmental, social, and governance. ESG appeared on the public radar a few years ago and whose impact is growing rapidly. Let's take a look at what ESG means, how it differs from the SDGs and, most importantly, why we should care.

Credit: Abby Anaday (@aalteredstaate) on Unsplash

ESG is a concept used for assessing the sustainability and ethical impact of companies and investments. If you remember some of the SDGs, you might say that they also have social well-being, the economy, and the environment at their core. And you would be right. ESG is connected to sustainable development, but it is not the same thing. So what’s the difference?

Sustainability focuses on long-term existence that doesn’t harm and, in an ideal world, even improves the environment, society, or the economy.

ESG, on the other hand, is a set of factors that are considered important in investment decision-making. It is also used to assess how companies perform with regard to each of these factors, and to determine whether investing in a company is worth it. So, while ESG is obviously connected to sustainable development, it is more of a criterion to assess a company’s performance and make informed decisions.

Let’s take a closer look at the E, S and G factors and their implications behind them.

• The environmental aspect focuses on a company's impact on the environment. It often includes looking at the company’s principles and what it does about the issues of climate change, greenhouse gas emissions, resource usage, biodiversity loss, deforestation, pollution, energy efficiency, and water management.
• The social aspect refers to a company's policies and impact on its employees and society in general. It usually covers factors like employee safety and health, working conditions, diversity, equity, inclusion, and often customer satisfaction.
• The governance aspect covers the systems and structures that guide a company’s operations and decision-making processes. The most important among the evaluated factors often include cybersecurity and privacy practices, transparency, and management structure.

Those three aspects make up all of the factors that may directly influence the long-term financial success of a company.

So why is ESG important? Well, it isn’t, if you aren’t an entrepreneur or an investor, if you’re not working for a corporation or if you simply don’t care about the impact of companies whose products you’re always purchasing. But if you are, here are a few reasons why ESG becomes important.

For companies, ESG matters because it helps them identify and manage risks, navigate and comply with regulatory requirements, attract investors and facilitate access to capital.

Yet ESG isn't just about business. For consumers, it sets a standard for companies to live up to. For example, companies today have the responsibility and resources to take positive climate action and contribute to a sustainable future. But ESG doesn’t only affect the impact a company has on the environment, it directly affects the lives of its employees and consumers. And if you don’t believe me, here are some examples of how Russian companies have integrated ESG, and how it might have already affected your life without you even being aware of it.

One of the leading petrochemical companies in Russia, Sibur oversees several environment-related projects. The most recent one involved planting more than 4 million trees in Tatarstan, the Nizhny Novgorod Oblast and the Tyumen Oblast in 2024 alone, with the figure expected to rise to 5 million by the end of the year. In total, the project will absorb 50 tons of CO2 equivalent.

Yandex's sustainability report is always an interesting read, but the 2023 one was presented not only as pure facts and figures but also as a comic book. In the report Yandex draws our attention to its taxi drivers and couriers — two jobs usually kept out of the limelight. One of the comics in the report tells us about the project that allows couriers and taxi drivers to include their Dreams in their profile on the app. And according to the 2023 report, the tips received by Yandex couriers and drivers increased by 31% if their profile included a personal dream.

As you can see, ESG helps organisations increase their sustainability efforts, reduce their environmental impact, and have a more positive impact on society. And I want to believe that it's not just about ensuring the long-term success of the company or attracting investors. I hope that, as a society, we have become more responsible than ever before regarding the consequences of our actions and more concerned about the people around us.