Prepared and arranged by: Dr. Amin Padash, HSEQ Coach, President of the Iranian Scientific Association of Health, Safety and Environmental Management and Engineering (HSEME)

What is ESG? Definition and general concept

ESG is an acronym for three words: Environmental, Social, and Corporate Governance. This concept refers to a set of criteria and principles that evaluate the performance of organizations in the field of sustainability, social responsibility, and management transparency. ESG helps companies improve their environmental impacts, social impacts, and management structures and move towards sustainable development.

These criteria cover a variety of topics, including reducing greenhouse gas emissions, promoting diversity and inclusion in the workplace, transparency in management decisions, and combating corruption. In short, ESG is a tool that allows companies to manage and evaluate their performance from a social and environmental responsibility perspective.

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History of ESG Formation and Its Evolution

The idea of ​​ESG was formed in the 1990s and over time became one of the key elements in financial and investment analysis. Some important milestones in the history of ESG are:

• In 1987: The Brundtland Report by the United Nations introduced the concept of sustainable development and emphasized the need to align economic growth with environmental protection.
• In 2004: The United Nations published the report "Who Cares Wins" proposing the concept of ESG as a tool for investment decisions and highlighting the importance of non-financial criteria in assessing the performance of companies.
• In 2006: The United Nations launched the Principles for Responsible Investment (PRI), which provided investors with a framework for considering ESG in financial decisions.
• In 2015: The Paris Agreement and the Sustainable Development Goals (SDGs) emphasized the importance of ESG in achieving the global development goals.
• From 2020 onwards: Global crises such as climate change, social inequality and the COVID-19 pandemic have drawn increased attention to ESG. More companies and investors have made ESG a priority.

This trend shows that ESG has evolved from a theoretical concept to an important operational criterion for businesses, playing a key role in investment decisions, risk assessment and sustainable development.

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Why ESG is important in today’s business world

1. Changing societal expectations: Consumers and investors today expect companies to go beyond making profits to also accept their social and environmental responsibilities. This change in expectations has led organizations to pay attention to ESG criteria to maintain their reputation and public trust.
2. Risk management: ESG helps companies reduce risks related to climate change (such as global warming), human rights issues (such as labor unrest), and management transparency (such as corruption and financial abuse).
3. Investment attraction: Many investors, especially sustainable investment funds and large financial institutions, are incorporating ESG criteria into their decision-making. Investors believe that companies with strong ESG performance have lower risks and offer more sustainable returns.
4. Brand and reputation enhancement: Companies with strong ESG performance have a more positive public image and gain greater trust from customers, investors, and business partners. For example, consumers are more likely to be loyal to brands that are committed to reducing waste or supporting local communities.
5. Compliance with laws and regulations: New international laws and standards require companies to comply with sustainability criteria. Companies that proactively pay attention to ESG will have an easier time complying with these regulations and avoid potential fines.

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Benefits of implementing ESG for companies

• Improved financial performance: Research has shown that companies with strong ESG performance have higher profitability in the long term and their share value increases. This is due to attracting more investment and better risk management.
• Talent attraction and retention: An organizational culture based on social and environmental responsibility attracts talented employees and increases their motivation to stay with the company.
• Access to sustainable finance: Companies that comply with ESG are more likely to be considered by sustainable investors and green finance funds.
• Innovation and Competitive Advantage: Paying attention to environmental and social issues drives companies to innovate in products and services, which can create a long-term competitive advantage for them.
• Cost Reduction: Using resources efficiently and reducing energy and raw material consumption can reduce operating costs. For example, investing in green technologies reduces energy costs in the long term.

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Conclusion

ESG is not just a performance measurement, but a strategic tool for sustainable growth, building trust, and managing risks. Companies that prioritize ESG are not only building a more sustainable future for society, but are also on the path to their own long-term success. Given global trends and changing consumer and investor expectations, implementing ESG is no longer an option; it is a necessity. Companies that join this path sooner will have a competitive advantage and greater sustainability.