The term ESG — environmental, social and governance — is familiar to most companies today. But the concept as it relates to corporate action isn't fully understood, says Bonnie Nixon, director of ESG and sustainability with Long Beach Container Terminal. 

Public awareness of ESG has evolved through the years, and the terms have changed accordingly – from environmental protection and human rights to sustainability and, most recently regeneration, which describes efforts to “heal what’s already been broken,” Nixon says.

What has propelled ESG to the executive suite is the financialization of sustainability, she says. Investors are increasingly basing their strategies on companies’ commitment to the environment. When chief financial officers began to get involved, Nixon says, “we knew that investments would start to flow to innovation.”

Companies are becoming aware of the long-term financial implications of ignoring ESG principles. Early efforts to address them tended to get bogged down in the difficultly of comparing disparate standards and carbon emissions by various industries. Businesses began to make progress on that front when they proceeded to measure what they all have in common: fuel consumption.

The continuing challenge toward advancing environmental practices within the business sector lies in the difficulty of assessing and controlling emissions at multiple levels of the supply chain — all the way back to raw materials extraction. Companies must be able to measure emissions at all levels — Scope 1 (their own direct emissions), Scope 2 (energy purchases) and Scope 3 (the extended supply chain).

It's more than a question, however, of measuring and controlling greenhouse gases, Nixon says. Additional pollutants such as nitrous oxide and sulfur oxide must be considered. Especially tough to address are non-biodegradable materials such as plastics and rubber. “How biosystems are being degraded is where we need to put our attention,” she says.