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ESG and Sustainability

The Basics of ESG and Sustainability: A Concise Overview

At Ethix, we’re primarily focused on bringing products to you in a sustainable, eco-friendly, and humane way.

What does that mean, though, and how do you quantify it?

Two related concepts, ESG and Sustainability, are a key part of the equation. Let’s talk about them!

Defining ESG: What Is It?

Sustainability is a relatively well-known term, and while we’ll dig a bit more into it shortly, it’s first worth defining and explaining ESG.

ESG stands for Environmental, Social, and Governance. It’s the collective name for the policies, practices, and attributes of a company and is a way to measure that company against others in the same niche or in the global marketplace. It’s also a key part of modern investing, as more and more investors choose to “put their money where their mouth is” and make sure they only invest in companies with high ESG ratings.

What is ESG Definition

Where does the term ESG come from? It was first mentioned in 2006 in the United Nations Principles for Responsible Investment. However, the conceptual groundwork for ESG can be traced back to many earlier UN initiatives. Key milestones include the 1992 United Nations Framework Convention on Climate Change (UNFCCC), the 1997 Kyoto Protocol, the 1997 Global Reporting Initiative, and the 2000 UN Global Compact.

The general goal of ESG at the outset was a metric to measure non-business risks that a company could face in the world moving forward as more and more people grow increasingly concerned with environmental, social, and justice issues across the board.

There’s no objective way to measure or quantify ESG factors. You can’t take a self-assessment and come up with an ESG score. Ethical behavior in modern capitalism is a challenge, and there’s no perfect solution. We can each only do what we believe is best with the knowledge and resources we have.

ESG applies inward, as a company focuses on improving the factors involved in the analysis, building a more ethical overall operation.

ESG also applies outwards, as investors and customers look to see how a company fares overall and decide whether or not to buy from or invest in that company.

“Numerous institutions, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD), are working to form standards and define materiality to facilitate incorporation of these factors into the investment process.” – CFA Institute.

Adding Sustainability to The Conversation

While terms like ESG and sustainability are tossed around with a lot of fuzziness around the edges, there are a few tangible differences. 

Sustainability is all about the company’s ability to operate in a way that can maintain and promote its operations without jeopardizing the future. One of the biggest examples everyone knows about sustainability is greenhouse gas emissions. Using techniques today, like mass factory farming, refrigerant usage, or other emissions, can make life and business easier today. But, as greenhouse gasses build up, climate change accelerates, and the world rapidly becomes more and more difficult to inhabit, jeopardizing the future. 

Sustainability Picture of Factory

In a sense, sustainability is about long-term operations. As a business, you may not necessarily be focused on the lives of people unrelated to your company, but it’s still important to consider the impact your company can have, directly and indirectly, throughout your processes.

Consider a hypothetical scenario: If a company were to employ a majority of union workers in its manufacturing and production facilities located in the United States, being fully compliant with laws, regulations, and best practices for labor, paying a living wage, and offering numerous benefits to employees, it would indeed be making significant strides in ethical practices. However, even in such an ideal situation, there’s still another piece of the puzzle to consider: the sourcing of initial materials or products.

While commendable, all the best practices that the company implemented at the manufacturing level would be overshadowed if the raw materials came from unethical sources.

At Ethix, while we aspire towards the highest ethical standards, we must note our current position. We encourage our clients to use union-made products whenever feasible. However, it’s crucial to understand that not all vendors we collaborate with employ union workers. Our prevailing production standard is “Made in USA,” though we always aim to progress further up the ethical value chain. Our mission is to gradually move our offerings to higher ethical standards, such as union-made or worker-owned products, in addition to being sustainable. We’re committed to this journey, even if we have yet to reach the pinnacle.

To cite our own commitment from our Standards page:

“Despite our hard work and best intentions, it’s unfortunately true that we can’t yet stay in business while only offering items that are union-made, worker-owned, and environmentally sustainable throughout the entire supply chain. It’s impossible for us to uphold our first ethic of transparency without acknowledging that fact.

What we have committed to is not to offer products that are produced mainly outside the US or Canada unless certified “Fair Trade.” 

In the end, the “ethics of Ethix” means being crystal clear about our intention to offer products that are sustainable and good for workers at every level of production while never pretending that we’re further along toward that goal than we actually are.”

In many ways, ESG is a subset of overall sustainability because the factors that go into each part of ESG are factors that influence overall sustainability. 

The Benefits of ESG and Sustainability

The integration of ESG and sustainability principles into businesses is not merely a gesture towards ethical practices; it also brings a wealth of tangible and intangible benefits that can greatly enhance the long-term value and reputation of a company. 

Green Company

Here are some of the key benefits:

  1. Risk Management: Companies that integrate ESG factors into their operations have a deeper understanding of the potential risks, be it from environmental hazards, social unrest, or poor governance structures. Proactively addressing these risks can lead to better operational performance and fewer disruptions.
  2. Improved Financial Performance: Numerous studies suggest that companies with strong ESG profiles tend to outperform their counterparts in the long run. By aligning with sustainability, they can tap into new markets, reduce costs, and enhance overall profitability.
  3. Increased Investor Attraction: The global investment landscape is increasingly focusing on sustainable investments. ESG-focused companies are more likely to attract funds from institutional investors who recognize the value of responsible business practices.
  4. Stakeholder Trust and Loyalty: By committing to sustainable and ethical practices, companies can cultivate greater trust among stakeholders, including customers, employees, and suppliers. This trust translates to increased brand loyalty and a competitive edge in the marketplace.
  5. Innovation and Adaptability: Embracing ESG often encourages businesses to innovate. Whether it’s through the development of eco-friendly products or new models of employee engagement, innovation derived from sustainability can open doors to fresh market opportunities.
  6. Employee Satisfaction and Talent Attraction: A strong ESG agenda can help attract and retain top talent. Employees today, especially younger generations, want to work for companies that reflect their values. Companies that prioritize ESG are often more appealing to employers and to other businesses.
  7. Regulatory Preparedness: As global concerns over environmental and social issues grow, governments are introducing more stringent regulations. Companies that are already aligned with ESG principles are better poised to adapt, ensuring compliance without scrambling.
  8. Long-term Sustainability: Beyond the immediate benefits, a commitment to ESG ensures that a company is thinking about its long-term viability. By ensuring that operations are sustainable, these companies are laying the groundwork for success for years to come.

ESG and sustainability are indeed about doing what’s right for the world, but they also offer substantial benefits that can enhance a company’s bottom line, reputation, and longevity. Integrating these principles is not just ethically sound but also strategically smart.

The Issue of Greenwashing

“Greenwashing” and its related term, “Bluewashing,” are marketing techniques used by companies that want to promote their ostensible commitment to the ESG and sustainability of their manufacturing and fulfillment processes. 

Consider how, during Pride Month every year, companies all across the country switch social media profile pictures to include rainbows, put rainbows on all of their merchandise, and publish social media statements, marketing materials, and other messaging offering inclusiveness and acceptance.

Benefits of ESG and Sustainability

Then, when the month is over, all of that messaging dries up. Meanwhile, you see emerging reports of bigotry and mistreatment throughout the internal operations of many of these companies. Relatively few are actually dedicated to the policies they claim to uphold; instead, they use them as a way to market during the month.

Greenwashing and Bluewashing are the same sort of thing:

  • Greenwashing refers to paying lip service to environmental concerns like carbon emissions. 
  • Bluewashing refers to more social factors like the human rights of workers and their labor.

Unfortunately, far too much of what you find online as “ethically sourced” products may do the bare minimum in an immediate sphere around their American facilities but then conveniently fail to ever inspect things further up the pipeline to lend themselves plausible deniability.

That’s why we’re as transparent as possible. We know that the standards and the conditions worldwide are always changing, and we strive to change with them.

ESG theory is great and all, but what are the more tangible elements of sustainability? Here’s a breakdown.

The “E” in ESG: What Are Environmental Factors?

Environmental concerns often start at the very beginning of the production pipeline. In the case of clothing like what we produce, for example, it begins with the growing of cotton. Cotton can be a very thirsty crop, consuming a lot of water. So, for example, a primary concern can be the location of the cotton fields. Growing cotton in climates and environments suited to it, rather than having to pipe large amounts of water in to irrigate a desert, is a key factor.

Farming can also be improved in a variety of ways. Plants have pests, but there are natural ways to control those pests, so cotton grown without the use of pesticides is ideal. Similarly, large monocultures and mono-crops can devastate the ecology of an area, but sustainable farming can use crop rotations, co-growing, and other techniques to encourage biodiversity and sustainability.

Obviously, there are also more obvious considerations as well. You don’t want to clear-cut a forest to plant a cotton field when there’s better, more suitable land available.

Environmental Factors

Overall, environmental factors can include, but are not limited to:

  • Climate change
  • Energy efficiency
  • Carbon emissions
  • Waste management and pollution
  • Biodiversity
  • Water scarcity
  • Deforestation

Moreover, best practices require actual action. One of the greatest obfuscations in environmental protection and sustainability is “carbon credits” and carbon offsets, the idea that, rather than directly changing anything themselves, a company can buy “carbon credits” and the money goes, in a roundabout fashion, to another company or group working to promote more effective climate change solutions.

The reality is that those credits go nowhere, give a company free rein to continue with destructive operations while complying with regulations, and nothing tangible is ever done. This is, of course, to be avoided; we want real change and real sustainability, not smoke and mirrors (with an emphasis on smoke.)

The “S” in ESG: What Are Social Factors?

Social factors include a lot of surface-level business elements, like customer satisfaction, but they also go much deeper into the actual operations and foundational ethics of the company.

Social Factors

Factors under the social umbrella include:

  • Data protection and privacy
  • Gender inclusivity and diversity in employees
  • Human rights for workers at all parts of the supply chain
  • Labor standards for employees and those of your sources
  • Satisfaction and engagement from employees

Discrimination is a huge issue, and biases are difficult to recognize and address. Moreover, standards can vary from location to location. What seems progressive and forward-thinking in one area could be the bare minimum in another.

There’s a lot to consider surrounding social factors in business. For our part, we tend to focus on labor rights, equality, inclusion, and human rights across the board. We want positive relationships with everyone across every level of our organization and throughout the companies and suppliers we work with. 

Sometimes, that means knowing a deep level of detail, which produces what we purchase as materials. Other times, it means doing the best we can with the information we have available, buying from certified Fair Trade suppliers, and continually improving when the opportunity to do so arises.

The “G” in ESG: What Are Governance Factors?

Governance factors tend to be most relevant for large companies; the smaller a company is, the less room there is for corruption and abuse. That’s not to say it doesn’t happen – and it’s definitely not to say we ignore it – but it’s less important than environmental and social considerations.

Governance Factors

Also, governance factors tend to be related to and build upon social factors. For example, here are some governance factors:

  • The composition of the board of directors
  • Auditing structures and compliance
  • Elimination of bribery and corruption internally and externally
  • Either elimination of (or transparency with) political contributions and lobbying

Many of these are, in a sense, extensions of basic inclusivity, human rights, and labor practices. You don’t have to specifically focus on the composition of your board of directors if you’ve embraced inclusivity at all levels (or if you’re too small to have a board.) You don’t need to worry about bribery and corruption if you’re embracing fiscal responsibility and good governance across the board. Human rights guide investment and any sort of local or federal lobbying you might consider.

Governance is important, but it’s also highly related to social practices, and those social practices need to be in place first.

What Are Sustainability Factors?

While ESG factors are primarily focused on the present, sustainability efforts are focused on the future.

Sustainability Photo

To that end, sustainability includes many of the ESG factors, particularly those in the environmental section.

“Environmental sustainability focuses on reducing or eliminating negative impacts on the environment by minimizing greenhouse gas (GHG) emissions, reducing waste and pollution, and conserving natural resources. The social aspect focuses on promoting social equity, diversity, and inclusion by ensuring fair and safe labor practices that prioritize health and safety, human rights, and community involvement. Finally, the economic aspect of sustainability focuses on maintaining long-term profitability, creating economic value, and ensuring responsible resource allocation.” – HSBC.

Maintaining, preserving, and even bettering the environment and the world, both environmentally and socially, is a key tenet of sustainability. It’s good for the world, it’s good for people, and it’s good for the business. After all, you can’t keep doing business if the fields burn, the water dries up, and the people can’t afford to survive.

It’s also a matter of perspective. ESG is most often used as a way for potential customers or investors to evaluate a company to decide if they want to invest. Sustainability is something the company looks at to improve its position in the world and, in so doing, make the world a better place.

Moving Forward

At Ethix, we are dedicated to improving life on this planet. We do so in many ways, from focusing on human rights and labor rights for the people we employ and the suppliers we purchase from, all the way to the simple fact that we provide sustainable alternatives to mass-produced and more destructive kinds of manufacturing. 

We’re an ethical source in a world that struggles with the ethics of production. Why not explore and see what you might find?