Moving from ESG to EESG

The expansion from ESG to EESG

Sustainable investing has gained significant traction in recent years, with Environmental, Social, and Governance (ESG) factors at the forefront of investment decision-making. However, as the global landscape continues to evolve, a new paradigm is emerging: the expansion from ESG to EESG, incorporating an additional dimension of Equity. This shift acknowledges the crucial role of social equity and inclusivity in building a sustainable future.

In this article, we will explore the concept of moving from ESG to EESG and delve into its implications for sustainable investing, as well as the drivers behind the holistic view of the transition between ESG to EESG.

Understanding ESG: Environmental, Social, and Governance factors

Sustainable investing initially focused on environmental considerations, such as climate change, resource management, and pollution. Over time, the scope expanded to include social and governance factors, encompassing human rights, labour practices, diversity, board composition, and ethical business practices.

Limitations of ESG: The need for a holistic approach

While ESG factors played a significant role in driving sustainability initiatives, the exclusive focus on the environment, social issues, and governance overlooked a crucial aspect: equity. Ignoring the systemic inequalities in society hindered the achievement of sustainable development goals. 

Introducing EESG

Expanding the scope to include Equity to address these limitations, the concept of EESG emerged, emphasising the importance of Equity alongside Environmental, Social, and Governance factors. EESG acknowledges that social equity, fairness, and inclusivity are fundamental pillars of sustainability.

The shift from ESG to EESG reflects a growing recognition that companies have a responsibility to go beyond the minimum requirements and actively contribute to a more sustainable and ethical world. While ESG provides a foundation for sustainable practices, the integration of ethics ensures that decisions and actions are driven by a deeper sense of purpose and responsibility.

The Drivers of the EESG Transition 

Social Justice Movements and the Call for Equity

The rising social justice movements around the world have highlighted the urgent need for addressing systemic inequalities. The demand for equity and social inclusion has resonated across various sectors, including finance and investment.

Recognition of Interconnectedness: The Link between Environmental and Social Issues

There is growing recognition that environmental issues and social issues are interconnected. For instance, the impacts of climate change disproportionately affect vulnerable communities. This realisation has prompted a more holistic approach that considers both environmental and social factors.

Regulatory Initiatives and Investor Demand

Regulators and policymakers are increasingly focusing on sustainable finance. They are incorporating equity considerations into regulations and guidelines, encouraging investors to adopt EESG principles. Simultaneously, investors are recognising the financial risks associated with social inequalities, leading to an increased demand for EESG investments.

Impact of the COVID-19 Pandemic on EESG Focus

The COVID-19 pandemic has exposed and exacerbated existing social inequities. It has underscored the importance of addressing systemic vulnerabilities and ensuring equitable access to healthcare, education, and financial resources. This has further propelled the shift towards EESG investing.

Promoting Good Governance

Governance remains a critical component of EESG, encompassing transparency, accountability, and effective risk management. Companies need robust governance structures to ensure the integrity of decision-making processes, prevent corruption, and protect shareholder interests. Ethical governance practices involve avoiding conflicts of interest, promoting board diversity, and establishing mechanisms for stakeholder engagement.

Conclusion

The transition from ESG to EESG signifies a critical evolution in sustainable investing, emphasising the importance of equity considerations alongside environmental and governance factors. As investors increasingly recognise the interdependence of environmental and social issues, the EESG framework presents an opportunity to address systemic inequalities and build more inclusive economies.

By incorporating equity metrics, engaging with companies on diversity and inclusion, collaborating with stakeholders, and measuring impact, investors can drive positive change and foster sustainable development. However, challenges such as data availability, balancing financial returns, and effective stakeholder communication must be addressed to realize the full potential of EESG.

Moving forward, it is crucial for investors, businesses, policymakers, and civil society to collectively embrace the EESG approach and work towards a future that prioritises environmental sustainability, social equity, and good governance. Only through such collective efforts can we create a more resilient and inclusive global economy that benefits both present and future generations.

Reabetswe Menyuko

Consultant: Risk Advisory Services, Johannesburg