In this blog, I shall focus on the ‘E’ factor of ESG.

The environmental criteria are set based on how the operations have an impact on nature and natural resources, both directly and through its ancillaries. Managing environmental risks is the core of the E in ESG, as it has a direct impact on the sustainability of the organisation, thus leading to investment decisions.

The ultimate goal of the E is to reduce the risk of environmental risks and harms and set policy benchmarks to mitigate them. For example, let me try citing the business of leather processing. If the company continues its operations where the harmful chemicals are dumped in the sewage, which goes to mix in the water bodies, it is just a matter of time before the climate activists (or even the common people) will force the regulatory bodies to invoke actions that may lead to huge production losses and financial risks. Needless to say, no investor would like to pump in funds in such a situation. A company failing to have a proper plan to tackle environmental challenges is guaranteed to suffer downfalls.

Broadly the factors include a few critical aspects of the natural environment around us. We need to evaluate how the company operations use natural resources such as land, water, greenery and other critical non-renewable elements. How disposal of waste and the resultant pollution is handled is also an aspect that needs to be delved into. Let me remind you that in all aspects it is not only the direct impact but also the impact on the entire supply chain that is to be measured while evaluating the risks.

With this background, let us sum up how a well-projected 'E' criteria can impact an organisation:
A company with strong controls over environmental norms has goodwill in the market and the confidence of its investors,
If applicable, the demonstration of responsibility towards the environment helps in expanding the markets, resulting in growth,
In the long-term, well-executed ‘E’ risk mitigations help in reducing costs,
Employee morale increases, resulting in enhanced productivity,
Environmental-friendly propositions enhance the probability of a high return on investment and promise more sustainable opportunities.

Companies that ensure environment-friendly controls in their growth strategies often outperform their peers.