What is an environmental, social, and governance (ESG) policy?

ESG standards for “environmental, social, and governance,” and it is a three-pillar approach to managing a business’s impact on the world. Environmental refers to a business’s effect on the natural environment, such as how much waste they produce and energy they use. Social includes how the business affects the communities it operates in and its engagement with social causes. Finally, governance is concerned with the fairness and ethics of business practices and structure. ESG recognizes that businesses don’t exist in isolation and should strive to operate in prosocial ways, meaning they act in a manner that benefits society and the environment, not just their business.

What is an ESG policy?

An ESG policy could be really simple, like a document that outlines how the organization intends to evaluate its environmental, social, and governance activities and work towards improving each of these areas. It could also spell out in detail who at the organization is primarily responsible for this work, how suggestions or concerns can be raised, and what role employees can play. Alternatively, an organization might opt to create more specific policies. For example, if your organization has a pay equity plan as part of its governance strategy, you may opt to create a pay equity policy to accompany that plan rather than a more generic ESG plan. These more specific policies can be particularly helpful; they can more readily show what the organization is doing from an ESG perspective rather than a generic document that might be scant on the actual steps the organization is taking.

Where should I start with ESG?

Before you can implement ESG initiatives, you need to understand your company’s impact. The first step is to assess your business in relation to each of the ESG pillars by conducting a SWOT (strengths, weaknesses, opportunities, threats) analysis. Start with an in-depth review of your current policies, practices, and procedures, evaluating the impacts of each. Once you have a sense of your business’s impact, you can evaluate what the industry average is and get a sense of how your business compares. You can use this to guide your selection of some ESG measures that are strategic and intrinsically tied to your organization and align with its goals and purpose.

Can small businesses engage in ESG initiatives?

Yes! Small businesses can absolutely engage in ESG initiatives. The scale of your initiative might be smaller, but the impact is just as important. For example, for environmental initiatives, you could commit to making the switch from plastic cutlery and dishes in your communal kitchen space to reusable ones, or you could start a composting bin and build a garden using the composted materials on your premises. Socially, you could host a donation challenge in your organization and contribute to a local food bank or other charitable initiative. From a governance perspective, you could review your compensation practices and ensure that you’re working towards an equitable compensation structure. There are lots of options out there, so pick one and get started!

Businesses don’t exist in isolation, and stakeholders increasingly use the ESG framework to evaluate the risk and possible return on investment of companies. Learn how to improve your ESG performance. Download our free Guide to ESG Initiatives!

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