Ieva Naujalytė: ESG Principles Become the Basis of the New Reality

At this year’s LOGIN 2021 festival, speakers emphasized that new business rules apply in the new reality. Modern investors are looking not only for financial benefits but also for ways to contribute to the well-being of society, the country, and the world. That’s why companies are turning to ESG (environmental, social, governance) – based business model. Ieva Naujalytė, senior partner at PR agency Adverum, and Michael Diegelmann, founder and ESG consultant at investor relations firm Cometis AG in Germany, pointed out major reasons for this shift in this year’s conference.

Investors, especially the new generation, emphasize that their money should contribute to the world’s betterment besides financial returns. Buyers are also increasingly concerned – now they pay a lot of attention to how a product was grown, manufactured, delivered, packaged, and sold. Customers care whether the supply chain is compatible with nature, society, and sustainable management. So, to become a market leader or work with top players, businesses apply the ESG criteria in their practices. Not following ESG guidelines will soon be unreasonable and unprofitable as well, states I. Naujalytė, in her keynote The Rise of ESG: The Proven Way of Creating Value While Doing the Right Thing.

Three Principles

The ESG governance model, based on the principles of sustainable development, guides organizations to work towards measurable improvement in environmental protection, social responsibility, and corporate governance. Environmental areas include the consumption and optimization of energy and water, the regulation of carbon dioxide emissions, pollution prevention, and other environmental issues. Social responsibility consists of the company’s relations with employees, suppliers, customers, and the community – the desire and ability to contribute to their well-being, security, considering equality issues, eliminating them, and reducing exclusion. Corporate governance based on ESG principles ensures that the company is managed fairly, that gender equality is ensured on the board, and that managers are fair and accountable to shareholders and other stakeholders.

New Criteria

According to research, as many as half of the current millionaires make their investment decisions based on social rather than financial criteria. A large percentage of investors try to minimize the damage their investments can do to communities and the environment, while others simply want their money to contribute to the good in the world.

Investment in ESG funds has more than doubled in the last four years. Total assets of the ESG funds are projected to reach 53 trillion USD by 2025, accounting for a third of the world’s professionally managed assets.

Global Goals

Businesses, managed with ESG principles in mind, in the European Union already benefit – they can apply for special financial instruments, such as Green Loans and Bonds. In addition, adherence to ESG standards helps preserve reputation, avoid litigation and conflict. Accounting and auditing companies as well as rating agencies and non-governmental organizations around the world, are already the engines of ESG empowerment.

More positive developments are taking place at the global level, with the current US government rejoining the Paris Climate Agreement and preparing more information on the ESG; New Zealand has passed a law that by 2050 aims at zero carbon emissions.

Governments around the world are already moving towards ESG standards, and in this case, the change is driven by the changing needs of investors and society. Although ESG reports are not yet standardized globally, the world’s largest companies have been providing them voluntarily for some time. This will soon become part of the new reality of the entire business, says I. Naujalytė.