Environmental, social, and governance (ESG) refer to the three pillars commonly used to determine the positive impact a company has on its community. Positive ESG performance has long been linked to economic growth. In recent years, however, the heightened focus on sustainability has been a driving force for business strategies in our changing world.
As a new industry, cannabis companies have an opportunity to initiate sustainable practices to meet growing ESG demands. By understanding ESG trends, a cannabis business can mitigate risks and develop compliant policies from the get-go. Not only will this meet consumer and regulatory demands, but it will also attract investors who are looking to invest in companies pursuing the latest ESG initiatives. Here’s a closer look at how cannabis companies can incorporate and benefit from ESG efforts!
What Is ESG?
ESG refers to the environmental, social, and governance factors that play a significant role in the financial growth and value creation in companies today. Across the world, new sustainability goals have had a huge impact on today’s marketplace and have placed ESG issues at the forefront of business trends. These goals are focused on:
- Good health and wellbeing
- Stable work and economic growth
- Responsible consumption and production
- Climate action
At its heart, ESG is a way to evaluate long-term sustainability factors when developing risk management strategies. Key evaluations include everything from employee wellbeing to a business’s impact on the surrounding communities. When it comes to nascent industries like cannabis, new regulatory requirements are another top consideration when it comes to developing ESG strategies. With an understanding of ESG factors, students in cannabis industry training can prepare to meet the unprecedented growth of the industry.
ESG reports can have a significant impact on the financial growth of a company
Why Does it Matter to Those in Cannabis Careers?
Since its legalization, the cannabis industry has become accustomed to following strict regulations and combating misconceptions around the industry. To uphold good governance, those in cannabis careers have incorporated ESG practices into their business model. Some of the biggest drivers here are consumers, who are increasingly seeking out brands with sustainable practices and social responsibility methods. Beyond that, companies are facing increasing demands from:
- Investors
- Regulators
- Community stakeholders
- Employees
- Boards of directors
ESG practices can encourage compliance for those in cannabis careers
There is increasing evidence to suggest that companies with a mind for ESG issues have a lower cost of capital and demonstrate better financial performance in the long term. Since cannabis companies are operating in a nascent market space, they tend to come from more diverse financial backgrounds with greater concern for social justice issues. As the opportunities for local licenses grow, cannabis companies with strong ESG policies can position themselves for stronger growth in the marketplace.
Cannabis companies can demonstrate concern for sustainability with ESG practices
How to Build an ESG Strategy
Getting started with ESG involves identifying the company’s material aspects, priorities, and the impact their business activity has on the community. After identifying the company goals, businesses should conduct a risk assessment to determine the ESG risks and opportunities for growth. From there, you can take active steps to meet ESG standards by evaluating environmental, social, and governance practices throughout the company and its supply chain.
By practicing awareness today, cannabis businesses will be better positioned to comply with expected ESG legislation in the future. Not to mention, companies have the chance to distinguish themselves in the industry by building their reputation at the forefront of sustainability initiatives. In the process, businesses can improve their operational and financial performance while shaping public perception of the whole cannabis industry.
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