If you want business to serve the greater good and help sustain our planet, you have to know how to talk the talk. And there’s no better place to start than ESG, a framework for integrating environmental, social, and governance risks and opportunities into a company’s strategy.
The term is not as widely used as it once was because critics argue it detracted from a company’s bottom line. But the ideals behind it are still very much alive, said Barbara Porco, Ph.D., a clinical professor and managing director of the Gabelli School of Business Responsible Business Center.
“We used to call it corporate social responsibility(CSR); then we called it ESG. Now we call it sustainability or long-term value creation. Call it whatever you want; a rose by any other name still smells as sweet. The movement is still going forward.”
Porco shared seven terms that everyone interested in responsible business should know.
1. Sustainable Development Goals
Known as the SDGs, these were developed under the auspices of the United Nations and endorsed by 193 countries in September 2015 as a policy framework lasting through 2030. The 17 SDGs provide a powerful incentive for anyone, including those who want to succeed in business, to improve our world by identifying issues that countries can collectively address.
2. Shareholder vs. Stakeholder
A shareholder is a person who owns stock in the company. A stakeholder is a party interested in the company’s performance for reasons other than profit, such as its environmental impact or labor practices. Shareholders are stakeholders, but stakeholders don’t have to be shareholders.
3. Externalities
Externalities are the side effects or consequences that affect the environment and society as a result of industrial or commercial activities. Examples of negative externalities include air pollution and traffic congestion.
4. Greenhouse Gases
Also known as GHGs, these are gases that trap heat in the atmosphere and drive climate change, which is both a result of economic activity and a threat to it as well. GHGs are emitted naturally—for instance, our breathing releases carbon dioxide, and decomposing plants release methane. But they’re also released because of certain human activities (known as anthropogenic emissions), like the burning of fossil fuels. These emissions can be a result of a business’s practices, and they can be a threat to businesses as well. An increase in GHGs causes greater average surface temperatures, along with other effects, such as ocean acidification, smog pollution, and ozone depletion.
5. Climate Scenario
Companies draw up these scenarios to plan for how they would adapt to various effects of climate change as temperatures continue to rise.
6. Greenwashing
This occurs when businesses overamplify their ESG efforts to impress consumers, investors, employees, and the public. Whether it’s providing misleading information about a product’s sustainability or labeling a fund as “green” when it’s not, greenwashing erodes trust and can have significant repercussions.
7. Greenhushing
A company may withhold or underreport information—sometimes unintentionally—about practices that do not advance its stated ESG efforts. Greenhushing limits the quantity and quality of publicly available information, depriving stakeholders of transparency about the company’s activities.