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What the Modern Entrepreneur Needs to Know About ESG

Lamar University’s Bachelor of Business Administration (B.B.A.) in Entrepreneurship online program covers a broad array of business management subjects to prepare entrepreneurs for the myriad business challenges they will need to take on.

Many of the necessary business subjects learned in the program intersect with environmental, social and governance (ESG) matters, bridging finance and investments to ethics and corporate responsibility, company culture, marketing and various measures of sustainability.

The concept of ESG has experienced a remarkable takeoff, gaining significant momentum across various industries and global markets, and every entrepreneur should study and prepare to incorporate it into their business models.

What Is Environmental, Social and Corporate Governance (ESG)?

ESG is a comprehensive framework that assesses a company’s performance and impact in three areas: environmental, social and governance.

The environmental aspect assesses the company’s ecological practices, including resource use, emissions, waste management and commitment to sustainability. The social dimension focuses on how the company interacts with and affects society, encompassing factors such as employee relations, diversity and inclusion, community engagement and human rights. Finally, the governance component examines the company’s internal structures and processes, including its leadership, board composition, ethical practices, risk management and transparency.

Together, ESG provides a comprehensive assessment of a company’s responsible business practices and ability to generate sustainable value while considering environmental, social and ethical considerations.

How Did ESG Become a Business Priority?

The steady rise in the importance of ESG across the global business community can be attributed to several key factors:

  • Increased awareness: Growing concerns over climate change, social inequality and corporate governance have spurred a heightened awareness of the impact businesses have on the world. This has propelled individuals, organizations and governments to prioritize sustainability and responsible business practices.
  • Investor demand: Investors increasingly recognize the value of integrating ESG factors into their decision-making processes. They understand that sustainable and well-governed companies demonstrate long-term financial resilience and better risk management. Many investors also feel a moral obligation to support companies that align with their values. As a result, there has been a surge in demand for ESG-focused investment products and strategies.

Millennial investment leaders and industry organizations such as the Principles for Responsible Investment (PRI) are spearheading the surge of ESG, according to MSCI research. Recent findings emphasize the importance of ESG factors for high-net-worth millennials, with 87% considering a company’s ESG track record a vital factor when deciding to invest, according to MSCI research.

Additionally, 90% of millennials express a desire to align their investments with their personal values. The rise of millennial corporate leaders who speak on ESG matters through the financial media is also driving a profound shift towards values-driven investing.

  • Regulatory landscape: Governments and regulatory bodies worldwide have implemented frameworks and guidelines to encourage companies to adopt ESG practices. These regulations range from mandatory ESG reporting to policies promoting sustainable finance. Such measures have not only increased transparency but also incentivized businesses to embrace ESG principles. In particular, the Security and Exchange Commission (SEC) announced an Enforcement Task Force focused on climate and ESG issues in 2021, which is dedicated to proactively identifying ESG-related misconduct, including material gaps or misstatements in climate risk disclosures, per the Wall Street Journal.
  • Changing consumer behavior: Consumers, particularly millennials and Gen Z, are increasingly mindful of the social and environmental impact of their purchasing decisions. They actively seek products and services from companies that align with their values. The ESG movement has exposed the risks of corporate greed and how unsustainable practices can harm them and future generations. This has prompted businesses to integrate ESG considerations into their operations to remain competitive and appeal to this conscious consumer base.
  • Stakeholder engagement: The ESG trend has gained traction due to the active engagement of various stakeholders including employees, communities and advocacy groups. These groups hold companies accountable for their actions and drive positive change, further fueling the adoption of ESG practices. Ultimately, everyone is a stakeholder in the ESG movement.

How Does ESG Performance and Reporting Impact a Startup Company?

ESG considerations in startup ventures are not just moral imperatives but are also strategic necessities for long-term success. Harvard Business Review reports that entrepreneurs with a robust ESG strategy benefit in several ways:

  • Attract and retain talent: Because younger workers care about sustainability and meaningful work, entrepreneurs should incorporate ESG principles into their startups to create a compelling value proposition that appeals to talented individuals.
  • Enhance brand reputation and stakeholder trust: Startups that proactively address environmental and social challenges while maintaining strong governance practices are considered responsible and trustworthy. This can build credibility and foster loyalty among customers, investors and other stakeholders, providing a competitive advantage in the market.
  • Appeal to investors: Investors focused on impact investing or ESG-focused funds are increasingly drawn to startups prioritizing ESG factors, as these groups recognize the potential for risk mitigation, financial returns and positive contributions to society and the environment.

The principles of ESG and strategies for implementation and reporting are interwoven throughout Lamar University’s online program curriculum. If you have professional, financial and moral investments in sustainability, Lamar University’s undergraduate business program in entrepreneurship can raise your awareness and expertise in ESG and prepare you to make a positive impact in your entrepreneurial career.

Learn more about Lamar University’s online B.B.A. in Entrepreneurship program.

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