What is ESG and why does it matter for businesses?

What is ESG? Learn how environmental, social, and governance principles shape business success, strengthen brand trust, and build long-term resilience.

Octubre 17, 2025

To make a meaningful difference in environmental stewardship, organizations need clear guidelines they can follow. Yet conflicting sustainability standards can be overwhelming barriers to creating real impact.

ESG, which stands for environmental, social, and governance, centres on the importance of sustainability and how businesses affect the world around them. Put simply, the meaning of ESG is to help make sustainability a seamless addition to any business model.

Let’s explore how ESG creates impact and drives change across industries, as well as information on how to adopt and comply with ESG standards.

Table of contents:

ESG definition
What are the four pillars of ESG?
Why does ESG matter for businesses?
ESG regulations and compliance
ESG scores and ratings
Ways to start integrating ESG principles
The role FSC plays in supporting ESG goals
Strengthen your ESG strategy with FSC

ESG definition

ESG is a framework businesses use to assess their broader responsibilities and impacts beyond financial performance.

Over the past two decades, ESG has shifted from a niche concept to an essential requirement for investors, consumers, and policymakers. Stakeholders increasingly want companies to show how they create long-term value in sustainable and accountable ways.

The Forest Stewardship Council® (FSC®) helps companies prove commitment to ESG values with internationally recognized certification that guides businesses on sustainable forest management. As of 2025, more than 160 million hectares of forest worldwide are FSC certified, clear evidence that responsible sourcing and transparent governance can scale globally.

What are the four pillars of ESG?

Understanding what ESG is in business involves looking at how companies put these principles into practice through measurable commitments.

The ESG framework is typically explained as three interconnected pillars, but we also call out a fourth: economic sustainability. Together, these pillars give businesses a more complete structure to evaluate and improve their long‑term impact.

The four pillars of ESG are environment, social, governance, and economic sustainability.

Environmental

The environmental pillar looks at how organizations interact with nature. It covers carbon emissions, renewable energy use, waste reduction, biodiversity conservation, and resource sourcing.

Companies that track and limit their ecological footprint are better positioned to meet climate goals and adapt to environmental risks. This evaluation should stretch across companies’ entire value chain, from raw material sourcing to production processes like energy consumption, water usage, and chemical waste.

Environmental integration allows organizations to reduce costs, waste, and inefficiencies by streamlining supply chain operations. It also helps build resilience against climate disruptions through diversified sourcing and risk planning.

These efficiency-boosting sustainable forestry solutions, like FSC certification, show how responsible sourcing of wood, paper, and packaging supports biodiversity and community well-being, all part of an eco-conscious supply chain.

Social

The social pillar evaluates how organizations, employees, consumers, suppliers, and communities engage with people through sustainable business practices.

Organizations that show they prioritize people not only strengthen employee loyalty and attract top talent but also build consumer trust. In practice, this means ensuring fair wages, safe working conditions, and community engagement. FSC has long aimed to advance these commitments by advocating for Indigenous Peoples’ rights and workers’ protections in certified forests.

For example, in Cameroon, FSC-certified forest operations collaborate with local communities to create jobs and improve access to education and healthcare, promoting sustainable livelihoods and showing how responsible forestry supports both people and the planet.

Beyond individual regions, FSC also reinforces Indigenous Peoples’ rights by embedding Free, Prior, and Informed Consent (FPIC) into its standards and taking action to protect communities living in voluntary isolation.

Governance

Governance is about transparency and ethics in decision‑making. It includes board diversity, executive pay tied to sustainability goals, anti‑corruption safeguards, and clear accountability.

Investors need to have a clear understanding of how a company approaches governance. Generally, strong governance involves a commitment to data disclosure, consistent application of standards, and decision-making focused on long-term value creation.

Organizations foster this value by building and maintaining stakeholder trust through transparency and proactive adaptation to evolving market conditions and regulatory demands.

Economic sustainability

Economic sustainability expands ESG beyond the traditional three-pillar model by adding long‑term business viability. A financially sustainable company balances profit with environmental and social responsibility, creating enduring value while opening new ways to help the environment.

Research in Europe has shown that FSC certification can improve the economic performance of forest owners and companies by opening access to new markets and supporting long-term business viability.

This often takes the form of ESG investing, which includes:

Prioritizing financial investment in climate‑friendly innovations
Diversifying supply chains to reduce risk
Building resilience against regulatory or financial shocks

In short, when businesses link sustainable practices with profitability, both stakeholders and communities benefit.

Why does ESG matter for businesses?

Strong ESG practices increasingly align with strong financial performance. A study by MSCI found that high-scoring ESG companies outperformed low-scoring peers on profitability, while Deloitte reported that a 10‑point higher ESG score correlated with a 1.2x higher enterprise value-to-EBITDA ratio.

Higher ESG scores can also provide financial incentives. Companies with strong ESG performance may benefit from preferential financing, such as lower interest rates on green loans or tax advantages for sustainable investments.

Companies that integrate ESG principles often earn investor confidence, attract financing, and gain marketplace trust. On the other hand, ignoring them raises risks such as regulatory penalties, supply chain instability, reputational damage, or accusations of greenwashing.

ESG investing also helps businesses lead on climate by positioning them as industry pioneers in sustainability. Carbon accounting and frameworks like the Science Based Targets initiative (SBTi) guide companies in setting credible emission‑reduction targets.

ESG is increasingly a regulatory requirement in Europe, with directives mandating disclosure of sustainability metrics and due diligence on human rights and environmental risks. Meanwhile, in the U.S., regulation is less strict, but many organizations still adopt ESG to build resilient and sustainable business models.

These frameworks add an edge over competitors still lagging in disclosure. To develop a comprehensive ESG strategy for your organization, download our Sustainability Strategy Ebook and learn how to drive both environmental impact and business results.

ESG regulations and compliance

ESG reporting requires companies to disclose measurable sustainability metrics that reflect their real-world impact, not simply their aspirations.

Transparent reporting builds accountability and helps prevent greenwashing. It’s rapidly becoming a baseline regulatory requirement as stakeholders demand credible, verifiable results.

ESG compliance requirements are rapidly evolving as agencies and organizations that create standards respond to stakeholder concerns about vague or inflated sustainability claims.

International ESG compliance

The International Sustainability Standards Board (ISSB) is developing global baseline standards for sustainability-related financial disclosures. These standards will harmonize requirements across jurisdictions, helping brands to avoid fragmented or conflicting approaches.

Alongside ISSB, the Global Reporting Initiative (GRI) provides a standardized methodology for companies to disclose their ESG impacts, helping them create credible and transparent reports for stakeholders.

For companies operating globally, using ISSB or GRI helps ensure their disclosures are recognized and trusted in international markets.

European Union ESG compliance

For example, the European Union’s Corporate Sustainability Reporting Directive (CSRD) obligates large companies and listed SMEs to disclose a wide range of ESG metrics, pushing for clearer and more reliable data that enables comparability across companies and sectors.

The CSRD essentially mandates both breadth and depth, requiring consistent, audited sustainability reporting that is accessible to investors, regulators, and the public.

United States ESG compliance

In the U.S., the SEC’s proposed climate disclosure rules, though not currently being defended, would require public companies to provide detailed information about their climate-related risks and greenhouse gas emissions, enforcing a higher standard of accuracy and transparency than previously demanded.

These rules are designed to ensure that investors have the comprehensive climate risk data they need to make informed decisions, while holding companies accountable for the credibility of their disclosures.

ESG scores and ratings

Investor confidence in a company’s sustainability performance often hinges on ESG scores assigned by leading ratings agencies, such as MSCI, Sustainalytics, and S&P Global. These agencies analyze vast datasets on environmental, social, and governance factors like emissions and labour practices to produce a composite rating.

The methodologies combine quantitative metrics with qualitative judgments, often drawing from public filings, proprietary surveys, and third-party audits.

Higher ESG scores attract investors and foster lucrative collaborations by signalling diminished regulatory exposure and a stronger brand image. Conversely, lower scores can trigger scepticism among stakeholders, raise the cost of capital, and even limit access to markets that prioritize sustainability.

However, each rating agency has its own criteria, weighting, and coverage, so the same company can receive materially different scores. This inconsistency can create confusion or scepticism, making it harder for businesses to tell a clear story and for stakeholders to know which claims to trust.

How ESG categorization works

Environmental, social, and governance frameworks drive companies toward more consistent, comparable, and reliable ESG reporting. Environmental disclosures, in particular, often rely on the Greenhouse Gas Protocol – a globally recognized system that categorizes emissions into three scopes essential to compliance:

Scope 1: These include emissions directly from owned or controlled sources, such as company vehicles, manufacturing processes, or on-site fuel combustion. For a manufacturer, Scope 1 covers emissions from its own factory operations.
Scope 2: These relate to emissions from the generation of purchased electricity, steam, heating, or cooling consumed by the company. While not emitted directly by the business, companies still have control over these through their choice of energy providers and energy efficiency measures.
Scope 3: These are all other indirect emissions occurring throughout the value chain, such as emissions from purchased goods, waste disposal, employee commuting, or upstream/downstream transportation. Scope 3 is the broadest category and often the largest, making it critical for supply chain sustainability and actionable ESG improvement.

While carbon accounting is central to ESG reporting, organizations also track other environmental metrics such as water usage, biodiversity impacts, waste management, and energy efficiency

When businesses consistently report on their environmental impacts, including emissions, they hold themselves accountable and meet the growing demands from rules and investors to act on climate change.

Carbon emissions are categorized in three scopes: direct emissions, indirect emissions, and value chain emissions.

Ways to start integrating ESG principles

Integrating ESG principles means embedding environmental, social, and governance considerations into the core of business strategy and daily operations. Businesses with clear ESG goals understand these considerations aren’t peripheral or short-term initiatives.

This approach involves aligning business objectives with long-term societal and environmental goals and ensuring that decision-making consistently reflects responsible values. ESG boosts resilience, reputation, risk management, and trust, leading to more capital access as well as customer loyalty.

The following interrelated actions are practical starting points for any organization:

Conduct a materiality assessment: Identify which ESG risks and opportunities are most relevant to the business and its stakeholders. This allows companies to prioritize efforts on high-impact areas, making ESG work more effective and focused.
Set measurable ESG goals and review regularly: Define clear, quantified objectives like reducing emissions or improving diversity. Then, review progress each year to ensure continuous improvement and accountability.
Choose appropriate reporting frameworks: Select standards like Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB) to guide ESG disclosure and ensure that reporting aligns with stakeholder expectations and regulatory requirements.
Engage employees, suppliers, and stakeholders: Foster a culture where everyone understands the value of ESG and contributes to initiatives. Collaborate across the value chain to amplify impact and ensure buy-in at every level.

These principles can help companies shift to a mindset of ongoing adaptation and lasting value. ESG integration, when genuinely adopted, positions businesses to anticipate changes and risks and continually uncover new opportunities for growth and positive impact.

The role FSC plays in supporting ESG goals

While companies have made real progress on ESG, adopting credible sustainability practices still poses real challenges. Many face persistent issues like collecting reliable, audit-ready data and quantifying impacts across diverse operations.

They might also struggle navigating the intricacies of responsible sourcing, especially as global supply chains expand and Scope 3 emissions account for a growing share of carbon footprints.

This is where independent, third-party verification systems, such as FSC certification for sustainable forestry, provide significant value. FSC adds confidence by using rigorous, science-based methods and by verifying impact within real-world forests and ecosystems.

Our third-party audits back up claims with measurable evidence to reduce the risk of greenwashing and ensure that sustainability assertions are reliable, credible, and transparent for all stakeholders, from investors to consumers.

FSC’s Climate & Ecosystem Services initiatives aim to help businesses strengthen their ESG strategies with:

Independently validated data that businesses can use for sustainability reporting, enhancing the quality and transparency of disclosures
Robust methodologies for tracking and accounting carbon removals and ecosystem services, giving companies tools to demonstrate measurable, science-based progress across environmental goals
FSC-certified products, enabling credible reporting on indirect (Scope 3) emissions for verifiable and trustworthy supply chains

FSC certification acts as a mark of integrity, ensuring that a company’s sustainability reporting is grounded in globally recognized standards and multi-stakeholder oversight.

Our goal is to help safeguard a company’s reputation and give stakeholders confidence that all ESG claims are supported by rigorous audits and transparent, internationally accepted principles.

Strengthen your ESG strategy with FSC

ESG gives businesses a way to connect environmental, social, governance, and economic sustainability practices. Companies can not only earn trust but also differentiate themselves in markets that expect leadership on sustainability.

With globally trusted systems for responsible sourcing and transparent reporting, FSC plays an essential role here. We aim to empower companies to build credible ESG strategies and inspire stakeholder confidence.

If you’re ready to help your organization lead with integrity and measurable impact, start your journey with an FSC solution and demonstrate your commitment to sustainable supply chains that benefit people, planet, and profits.

Additional resources

Readers who want to go deeper can look at widely recognized sustainability frameworks and global data sets, like the UN Principles for Responsible Investment (PRI), a global initiative that encourages investors to incorporate ESG factors into investment decisions.

Learn more about the Science Based Targets initiative (SBTi) target-setting guidance, providing companies with science-backed methodologies to set measurable greenhouse gas reduction targets aligned with the goals of the Paris Agreement.

And discover how certification is being applied globally in different regions by visiting FSC’s work in Africa, Australia, and the Asia Pacific regions.