You may be hearing a relatively new term being used in the corporate world, ESG. You will certainly be hearing it a lot more in the future and its implications for the East London Industrial Development Zone SOC Ltd (ELIDZ) have a strong bearing on its future sustainability. So, what does the term ESG stand for?
ESG, first coined in 2005, stands for Environmental, Social, Governance and it is a measure of these three factors which companies like the ELIDZ will need to quantify to talk about the sustainability of the organisation as well as its ethical impact. Today, companies include their ESG ratings in their annual reports, and both investors and customers demand these figures before doing business with the company in question. The great thing about ESG is the ability of a company to illustrate to its stakeholders how it manages risks and identifies opportunities that relate to environmental, social and governance criteria.
The environmental standards that are measured focus on the company’s operations and the impact they have on the environment. On the other hand, the social standards consider how the company creates value for its stakeholders and how community relations are managed, while the governance aspect refers to how a company is led and managed, its management style and philosophy, internal controls, and policies, and shareholder’ rights. The ESG framework enables companies to identify and manage risks or opportunities that arise in the market due to ever-changing environmental, social and economic systems. The ELIDZ can relate to each one of these pillars. Examples include tenant demand for renewable energy and water reuse (environmental), local community demand for more employment opportunities in the zone (social), and the decline of the global investment climate (economic). Companies with strong ESG capabilities are able to create and sustain long-term value, and they increase their agility by being able to identify rapid change and manage change to achieve a favourable outcome. These companies make good decisions based equally on the bottom line, people, and impact on the globe.
The ELIDZ does not yet have a specific mandate for ESG, although we measure our impacts and risks through independent efforts. The ELIDZ has its own risk studies, it measures its environmental impact and carbon footprint, while it also runs corporate social investment programmes, and there are community outreach initiatives. But perhaps this is an opportunity to bring all these separate efforts together into one broad programme that creates more value by demonstrating the organisation’s ESG status.
Why is the ESG market important for organisations like the ELIDZ? Well, investors are increasingly looking to align their portfolio with companies who have strong ethical and moral codes of practice. Morgan Stanley recently conducted a market survey and found that the global ESG market is currently valued at US$2trillion and by 2025 it should be close to US$6trillion! It is therefore critically important that the ELIDZ puts in place policies and structures to collect, analyse, and present data relating to ESG so that companies with similar business philosophies are attracted to invest in the IDZ.
The ELIDZ is always at the forefront of new and innovative ideas and projects. In the future, investors and customers will want to know more and more about the impact of their investment decisions and consumption patterns on the globe. Institutions like the ELIDZ will be expected to be as open and transparent as possible, and the need to measure and report ESG statistics will make the organisation more attractive to new investments. We hope to see training and work on developing ESG capacity within IDZs in the near future, as this will also have a direct impact on their bottom line and their sustainability.