ESG – a model for the future
As we emerge from the global coronavirus pandemic much will have changed. The question remains which business models will prove themselves in the future. Sustainability topics have been in vogue for some time now, and they are likely to become even more important in the coming years. The crisis has made it clear how important a holistic view is: business, society and nature belong together, they cannot be viewed individually.
How do you measure the sustainability of a company? In recent years, the concept of ESG has become established. The three letters stand for Environmental, Social and Governance. ESG measures how well companies do in these dimensions, on which there is traditionally relatively little reporting.
Why are ESG/sustainable investments particularly resilient? Even before the pandemic, various studies showed that companies that understand and actively manage risks are in a better position to survive a crisis. This insight has been confirmed once again during the COVID-19 pandemic. Typically, such risk management relates to issues such as supply chains, employee loyalty, corporate governance or internal processes – all factors of a systematic ESG analysis.
After the current crisis, the use of ESG information could support the transformation from the old to the new world in several ways. Or, to put it more simply: it is worth taking ESG assessments seriously for a number of reasons.
- Intangible assets are becoming more important
A company's ability to manage ESG issues successfully can be interpreted as an intangible asset that is becoming increasingly important in company valuations.
- Greater awareness of risks and vulnerabilities
The last few months have shown how interconnected and vulnerable our economic systems are. The crisis is drawing attention to such risks and vulnerabilities.
- More focus on resilient sectors and broader acceptance of change
Capital-intensive and cyclical sectors are most affected by the new coronavirus, especially those with globally integrated supply chains, and those related to tourism and non-essential services. Innovative and sustainable business models will become more attractive in all sectors.
- More attention to good corporate governance
High standards of corporate governance are at the heart of a sustainable corporate strategy. An analysis of ESG indicators provides important information on the quality of management and identifies companies that show resilience in times of economic downturn. At the same time, the same companies are better positioned to seize opportunities when the economy recovers.
- More attention to environmental and social resources
The drastic measures taken to combat the new coronavirus brought unexpected, even spectacular side effects: In Jalandhar in the north of India, air pollution fell so dramatically that the surrounding mountains were visible for the first time in 30 years.
Incorporating ESG for the long-term
Even though clearer skies come at a very high price, they could influence the way we see the world and rebuild our economy after the crisis. However, it remains to be seen how things will continue after the crisis. Will the holistic view of companies be further deepened? In addition to economic considerations, ecological and social resources should play a more important role in the decision-making process in the future – and the holistic view of companies should become more important.