Environmental, social, and governance (ESG) considerations refer to a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing issues such as climate change. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance criteria deal with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
It is said that the ESG proposition is directly linked to value creation and better financial performance for the corporates.
Some of its major impacts are as follows:

• Top-line growth: When governing authorities trust corporate actors, they are more likely to award them access, approvals, and licenses that afford fresh opportunities for growth. Companies with social engagement activities are perceived to be beneficial by the public and social stakeholders. For instance, in India, the Tata Group has garnered immense social capital and very seldom their projects face public outrage.
• Cost reduction: ESG proposition can reduce costs substantially by effectively combating rising operating expenses such as raw material costs. There is a significant correlation between resource efficiency and financial performance. For instance, 3M has saved $2.2 billion since the introduction of its “pollution prevention pays” (3Ps) programme in 1975.
• Reduced regulatory and legal interventions: A stronger external value proposition can enable companies to achieve greater strategic freedom, thereby easing regulatory pressure. It has been seen that strength in ESG helps reduce companies’ risk of adverse government action and can also engender government support.
• Employee productivity uplift: A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall. Recent studies have also shown that positive social impact correlates with higher job satisfaction, and field experiments suggest that when companies “give back,” employees react with enthusiasm.
• Investment and asset optimization: A strong ESG proposition can enhance investment returns by allocating capital to more promising and more sustainable opportunities (for example, renewables, waste reduction, scrubbers, etc.).