Today, on April 22, 2022, we celebrate Earth Day. Find out in this article all about Earth Day and how it is connected to ESG. In 1970 U.S. Senator Gaylord Nelson wanted to create a healthier environment by protecting our planet and its resources, so he invented Earth Day. That may have set the tone for environmental protection, education, and advocacy. This year’s theme is Invest in Our Planet. Therefore, there is a connection between Earth Day and ESG regulations.
Unless businesses act now, climate change will deeply damage economies, increase scarcity, drain profits and job prospects, and impact us.
Moreover, we already know that private sector innovation (with public support) accelerates the kind of rapid change we need, like nothing else. Studies directly correlate sustainable business practices, share prices, and business performance. Therefore, companies that develop robust Environment Social Governance (ESG) standards have better profitability. Those companies also have more robust financials, happier employees, and more resilient stock performance.
What Are the Consequences of Climate Change?
When it comes to climate change, money talks. Through regulations, incentives, and public/private partnerships, governments hold the keys to transforming and building the green economy. Similar to the industrial and information revolutions, governments must incentivize their citizens, businesses, and institutions to build a resilient future. Ultimately, governments will empower green business practices as not only an ethical option but also the lucrative one.
What actions would help fight climate change?
Renewable Energy
To begin, we can systematically replace our primary, fossil fuel burning energy sources. In contrast to fossil fuels, solar power, wind, geothermal, and biomass are renewable and clean energy sources that would reduce our carbon footprint.
Sustainable Transportation
We can adopt new, eco-friendly transportation methods. For example, we can reduce our carbon footprint by switching from fuel-operated to zero-emissions vehicles.
Air Pollution Prevention
Reducing fossil fuels and putting restrictions on industry emissions will help us reduce air pollution.
Recycling and Waste Management
We need to reconsider our consumption patterns and adapt our production methods. It is every individual’s responsibility to limit their use of non-degradable materials and recycle and repurpose where possible.
Sea and Ocean Preservation
Our oceans absorb greenhouse gases, which leads to ocean acidification, harming marine life. Along with reducing our carbon dioxide emissions, we should prevent overfishing and unsustainable development in coastal areas.
What can companies do to support the Earth Day and ESG mission?
Companies can support Earth Day by implementing an ESG strategy that follows and tracks Carbon footprint, reduce it, raise GHG awareness, and manage resources responsibly. Companies are discovering that it is no longer a choice between going green and growing long-term profits. Moreover, companies found sustainability is the path to prosperity. For humanitarian and business reasons, companies of all sizes must take action and embrace the benefits of a green economy.
Moreover, to further explain Earth Day and how it is connected to ESG, we have prepared a couple of examples of companies with ESG incentives.
Intel is a rarer example of a US-based company aligning its short-term incentives with ESG metrics. The company responded in 2019 to investor requests that it further disclose the ESG metrics included in the plan. These include metrics related to diversity, inclusion, employee experience and, as of 2020, climate change and water stewardship.
Danone links both its STIP and LTIP to ESG factors. Its annual variable compensation is weighted over three elements – economic (60%); social, societal and environmental (20%); and managerial (20%). In 2020, the social, societal and environmental portion Danone awarded based on strong employee sustainability engagement results, Danone’s 1.5° climate commitment and continued strong results on the CDP Climate survey. Meanwhile, Danone receives an “A” rating for three consecutive years.
Shell has included “sustainable development” metrics in its STIP for a number of years, including safety performance and upstream/direct GHG performance. In 2019, Shell responded to pressure from activist shareholders by including an “energy transition” metric in its LTIP (weighted 10%). The metric is based on a “mix of leading and lagging measures”: reduction in Shell’s net carbon footprint (a new carbon intensity measure that includes customer emissions), as well as growth in Shell’s power, biofuels and carbon capture efforts.
To sum up
Today, companies face increasing pressure to disclose decision-useful information on their sustainability performance. They also face a growing mix of regulations, standards and frameworks governing what and how to report.
To navigate this complex landscape of requirements, companies can seek ESG advisory. Our team at VX Associates will help you navigate the ESG climate and guide you every step of the way.
