Environmental, Social, and Governance (ESG) measures the sustainability and ethical impact of a company’s operations. ESG describes an organization’s environmental status, societal characteristics, and corporate governance, and reflects the organization’s exposure to, and management of, environmental-, social-, and governance-related risks.

Here are three things leaders need to know about ESG:

ESG is no longer a choice

ESG is becoming increasingly important for investors, customers, and other stakeholders. Companies that ignore ESG factors risk losing out on opportunities and facing reputational damage. In fact, research shows that companies with strong ESG performance tend to outperform their peers in the long run.

ESG is not just about compliance

While complying with ESG regulations is important, it is not enough. Companies need to go beyond compliance and actively integrate ESG considerations into their business strategy. This means setting clear ESG goals, tracking progress, and communicating transparently with stakeholders.

Critical is connecting the dots between sustainability risks and opportunities, investor demands, government regulations, finance, and business operations to think holistically about integrating ESG into every company function.

ESG is a leadership issue

ESG is not just a matter for sustainability or CSR teams. ESG has become a form of proxy measure for an organization’s leadership, alongside its financial performance. And, ESG performance requires leadership from the top to embed ESG considerations throughout the organization. This means ensuring that ESG is integrated into decision-making processes, that employees are trained on ESG issues, and that the company culture reflects ESG values. Leaders who embrace ESG as a core business value will be well-positioned to succeed in the future.

An ESG strategy is a cornerstone to accelerating impact and financial growth goals. A forward-looking ESG strategy deepens customer relationships and loyalty, improves the ability to attract and retain talent, reduces regulatory risk, increases the ability to attract capital, and results in increased resilience, driven by a more nuanced understanding of stakeholder expectations.