WHAT DOES ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) HAVE TO DO WITH DATA CENTERS?
The term ESG is becoming a common phrase in company boardrooms and C suites as investors, consumers and other essential stakeholders are taking a growing interest in how companies are responding and reporting this information. Broadly speaking ESG seeks to incorporate environmental, social and governance factors into company operations so as to generate sustainable, long-term financial returns while achieving good social responsibility and strong corporate governance.
When screening potential investments, investors, both institutional and private, often consider a company’s impact in the ESG buckets, along with long-term risks, opportunities and financial performance. Potential customers and employees may also evaluate a company’s impact on the world through a range of company and external sources to decide if they want to work with or buy from them. Some non-government organizations (NGO’s) are working to uncover companies’ performance on a range of ESG factors including Greenhouse Gas (GHG) emissions, carbon footprint and human rights in the supply chain. These entities are publicly shaming poor performers, especially those who have public commitments to the contrary.
Each of the ESG factors covers a wide range of company aspects which are summarized below:
Environment: Climate change and carbon emissions, energy use and efficiency, air and water quality, waste management, natural resource conservation.
Social: Customer satisfaction, data protection and privacy, gender and diversity, employee engagement, community relations, human rights, labor standards. Are suppliers held to the same values as the company claims to hold?
Governance: Board composition, audit committee structure, bribery and corruption, executive compensation, lobbying, political contributions, whistleblower programs
An increasing number of investors are requiring that ESG factors must be incorporated into decision-making and become more than just a check mark to increase transparency on sustainable and socially responsible practices. There is a growing momentum for corporations and financial institutions to move away from short-term perspectives of risks and returns, to better reflect longer-term sustainability in investment performance.
The shift toward developing an ESG plan comes as these considerations are recognized as helping to maximise operational efficiencies, align stakeholder interests, and reduce overall risks. In this manner, company operations should seek to enhance the sustainability of long-term returns, and incorporate more formalised alignment with societal values. Financial decisions must incorporate sustainability factors to maximise returns and profits over the long-term.