Strategic Management and Sustainability #9
ESG criteria are making millions inside business growth in S.XXI, discover what it its and how can they help you
Good morning dear readers,
In todays’ newsletter we will talk about ESG (Environmental, Social and Governance) criteria.
You will find valuable insights on topics such as
Why ESG are so important nowadays and what the impact is
Investing in ESG, is it profitable?
New scaling viability
Financial and Tax advantages of ESG
In addition to this, we included some interesting resources for those of you who are interested in further information about ESG criteria.
We hope you enjoy this week’s issue.
Feel free to contact us if you have any questions! :)
Juan Alexander Coronel Brito, Eva Rubio Mora, Claudia Cabaleiro Portugués, Lucía Iglesias Llorca, Liam Abramczyk
Students at University of Carlos III de Madrid
Today's newsletter is 1268 words, a 6-minute read!
What is the ESG Framework? ♻️
The Environmental, Social and Governance (ESG) Framework consists of analyzing these factors to assess companies and nations on how sustainable they are. Nowadays, this topic concerns business as it is important to create value for a company. To better understand ESG criteria we should explain the factors that are part of it:
🌍 Environmental factors include the energy and resources a company uses. Carbon emissions and the contribution to climate change are directly related to the environment.
🧑🤝🧑 Social factors include the relationships a company has with people and institutions in the places where it operates. In this category we can find issues related to workplace health and safety, such as human rights and labor standards.
🏛️ Governance factors include the set of principles a company adopts to govern itself. Some of the goals of these factors are to comply with legal regulation and meet the expectations of external stakeholders.
A strong ESG proposition leads to value creation in five different ways:
Regulatory and legal interventions
Investment and asset optimization
Why are ESG criteria important for CSR investors? 📈
Environmental, Social and Governance (ESG) criteria importance arise from problems such as coronavirus or climate change. What makes it more interesting for stakeholders is companies invest more in what benefits the environment in order to attract investors.
🍀 ESG criteria importance has been increasing during the year 2020 because the analysis and demand of information for this crucial component has increased by investors.
Even investment management groups like The Vanguard, have created a group of analysts focused on looking for companies who achieved ESG criteria. Actually, one of the most important Spanish banks, BBVA, is going in the same direction following a Socially Responsible Investing (SRI) strategy.
According to Business Investment Daily the top 5 ESG companies are:
WEST PHARMACEUTICAL ($WST)
These five companies share the higher ratings in terms of Environmental, Social and Governance (ESG). We aim you to research more about them in case you want to create your own SRI portfolio
Investing in ESG, is it profitable?
The main mission of a business is to be profitable. If you are an investor or an enterprise, making money is your primary goal. Today, the goal has not changed but companies have to focus on other branches other than profit. A company needs clients to make money. Climate impact , waste, social rights are the main focus clients today.
Forbes made an article and stated, “66% of consumers would switch from a product they typically buy to a new product from a purpose-driven company and nearly half of consumers say they would definitely or probably change their consumption habits to reduce their environmental impact.”
Therefore, stakeholders put pressure on the company to help solve the environmental and social uses that we are facing today. Since we have proven the importance of ESG, we have to take the investor glasses to see if it is still profitable to invest in ESG.
We have proven the weight of ESG in society now we are going to focus on money. Social investment grew by 34% in the past two years. The market value is equal to 30.7 trillion dollars in 2019.
The main concern for an investor is the risk of the investment and the ROI. Investors have seen a correlation between High ESG rating and stable investment. The biggest stakeholder in the world is our planet, Earth. Without raw materials nothing can be produced. In the energy industry, if we continue like this we will run out of oil in 2060 so in the long term it is a bad investment. However an ESG investment, respect the nature and the environment. Thus it is a better investment in the long run.
ESG in Inditex
Nowadays and as we have explained before, ESG factors are increasingly in force in finance. Sustainability became one of the reasons when choosing an asset to invest.
‘El Economista’ was the first media outlet to launch its own ESG ranking. To do this, he used an algorithm that, combining the marks of different providers, found a rating.
Inditex ranked second, with a score of 93 out of 100. Its score in governance was the highest, while in the part of transparency or disclosure of ESG data, the result was not so high (obtaining a 49.3 over 100).
The company has established a series of commitments in relation to sustainability that cover the entire value chain in each of its areas: design, manufacturing, logistics and stores.
The Join Life label: introducing the best technologies when producing and using more sustainable raw materials. It constitutes more than 35% of the garments.
Containers located in stores: Launched in 2015, it has already collected more than 60,000 tons of clothing, footwear and accessories. They cooperate with 45 non-profit entities for this project to be carried out.
Bet on clean energy: Its ten distribution centers located in Spain run on 100% renewable energy.
Sustainable packaging: Its 'Green To Pack' program consists of the standardization of the boxes in which all its merchandise is moved. In 2020 Inditex bought 16 million boxes made up of 64% recycled cardboard.
For more info: Zara's Join Life Webpage