The ‘e’ In Esg

Introduction 

As the world is feeling the effects of pollution and climate change manifesting in various calamities such as drought, floods, the significance of the ‘E’ in ESG is becoming increasingly undeniable. Nevertheless, it is crucial to undertake a comprehensive approach towards all the three factors as they are interrelated. 

The call to have entities incorporate ESG tenets and principles into their business models and day to day activities has been a concern from regulatory authorities, employees, consumers, investors and other stakeholders. In the quest for sustainable development businesses cannot therefore turn a blind eye to the ESG principles. 

This article which is part of a continuing series seeks to illuminate the ‘E’ in ESG and how businesses can implement it in their day-to-day activities. 

Understanding the ‘E’ in ESG 

The ‘E’ in ESG stands for Environmental factors and is a very crucial part of the parade towards carbon footprint reduction, waste management and use of renewable energy. The ‘E’ focuses on entities impact on the environment from all of its operations and activities and seeks to align entities with the global commitment to climate action goals.  

The ‘E’ addresses environmental factors which include the use and management of natural resources, pollution and waste management, carbon footprint and greenhouse gas emission reduction, energy usage and efficiency, climate change strategies, compliance with local environmental laws, implementation of policies on environmental management, certification of environmental management systems among others. 

Why the ‘E’ in ESG matters 

Global awareness on environmental impacts is rapidly increasing and their concerns are widely being considered by governments and private entities. The need for companies to understand and implement the ‘E’ in ESG has become an essential objective for their survival.  

Various stakeholders and investors vigilantly consider a company’s environmental impact policies and prioritize those who have better climate impact strategies on board. This pushes companies to take the ‘E’ seriously as they wish to thrive in the industry.  

The general public has also become more aware of the damaging effects of climate change, pollution and carbon emission and consumers are keen to associate with products and services of business that are taking on initiatives to mitigate these effects.  Thus, companies should not overlook ESG in their corporate goals.  

Implementing the ‘E’ in ESG: 

As we appreciate the need for entities to showcase their commitment to global environmental objectives, we can consider the different ways in which entities can implement the ‘E’ in ESG into their corporate culture.

1. Implementing eco-friendly policies and practices  

Companies can incorporate and implement new policies that address the environmental factors present in their operations while also employing pollution abatement mechanisms such as noise mufflers, filters, water waste treatment facilities among others. Placing more reliance on renewable sources of energy especially for those in the manufacturing industry. Engaging in recycling and re-using practices can also reduce the wastage of resources such as paper wastages in offices. This can also include adopting more digital work ethics to reduce use of paper. More eco-friendly policies such as reduction in use of plastics, recycling of materials, use of energy efficient machines and many more, can be implemented by companies to comply with their environment impact objectives. 00

2. Integrating environmental sustainability into core business strategies  

Companies can also adopt business strategies that aim to inject the reduction of environmental impact into their core values. These strategies can involve investments or partnerships into other eco-friendly businesses, cutting off high carbon emitting products or processes, initiating production of energy efficient products, sustainable sourcing of materials and resources, and giving opportunity to more innovations that seek to address and create solutions for climate change.   
3. Leveraging carbon markets to achieve ESG goals 

An up-and-coming area in Kenya for entities engaging in ESG practices is the carbon markets that have been introduced by the Climate Change (Amendment)Act 2023 and regulated by the newly published Climate Change (Carbon Markets) Regulations 2024. The carbon market offers an incentive to entities to lower their carbon emissions through the carbon credits available on the market while also penalizing companies for high carbon emission rates. Participating in the carbon market will keep companies aligned to their environmental impact objectives and carbon emission goals. 

4. Stakeholder involvement 

Companies should engage their various stakeholders as well as internal members on their various environment impact activities. This can be achieved through employee engagement, community involvement, customer collaboration and supplier partnerships. Such feedback can influence decision making when it comes to the choice of ESG initiatives, investment partners, suppliers among others.

5. Compliance with environmental laws  

Companies should ensure adherence to relevant environmental standards, notices and regulations as a demonstration of their commitment to responsible environmental management while also mitigating potential legal risks. 

Conclusion 

While the ‘E’ is just one of the pillars of ESG, its importance ranks high as it intersects largely and has a direct impact on social and governance policies. As global objectives shift towards a greener future, low carbon emissions, greater sustainability, businesses that align with these goals will have greater competitive advantage, attracting investors seeking to invest in environmentally conscious businesses and participating in the carbon markets.  

How we can help 

The Sustainability, Climate Change and ESG Practice Group at CM Advocates LLP is comprised of lawyers with diverse experience in laws affecting various industrial sectors. The team is well versed in matters relating to ESG integration in organizations to ensure compliance. We are equipped to ensure a well-rounded evaluation of a company’s impact on society, fostering responsible and ethical conduct in alignment with established global standards and frameworks. We offer ESG and related trainings and also assist in ESG reporting and transaction advisory.  

Should you have any questions on this or any other matter, please do not hesitate to contact Emily Gitau on egitau@cmadvocates.com or Sajni Shah on skamlesh@cmadvocates.com .