What is ESG and How Does It Impact Various Business Sectors?
Updated: Sep 2
In the past couple of years, we have heard a lot about the rise in ESG and its implementation in various industries today. But what is ESG and just how much does it truly impact business operations? What is it? In a nutshell, ESG is a sustainable approach to investing that takes into account the impact on nature (Environmental), people (Social), as well as internal accountability (Governance). Common concerns of the three segments to ESG are as follows: Environmental: Pollution, use of natural resources, consequences for bio-diversity, waste management
Social: welfare standards, product safety, no inequality or discrimination, customer satisfaction
Governance: anti-corruption policies, tax transparency, quality of financial disclosure, fair shareholder treatment
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What are its major benefits?
Long-Term Performance: Strong governance and sustainable practices often lead to more innovation, increased employee satisfaction and strengthened customer loyalty. This in turn leads to more stable returns.
Improved Brand and Talent Acquisition: Sustainable companies strengthen employer reputation and attracts top talent.
Advanced Risk Management: By choosing clean energy and responsible resource-utilizing companies, risks associated with environmental regulations are very much mitigated. KSA, for example, is committed to reducing its carbon emissions by 278 million tonnes per annum (MTPA) by 2030. Further, it is also introducing penalties for non-compliance with energy initiatives. By optimizing the company's ESG, you can invest your time and money with a clear mind, knowing that you are future-proofing, enhancing wellbeing of people and the environment, and complying with regulations.
Where is the data that proves its benefits?
In the latest report by Morgan Stanley Institute for Sustainable Investing, we have found outstanding results for ESG-driven funds:
Sustainable funds outperformed traditional funds by +40 bps (basis points) in Europe and +741 bps in the Middle East and Africa during the second half of 2025.
Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of February 5, 2026.
The general trend over the past 7 years is that sustainable funds constantly outperform traditional funds with very few exceptions.
Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of February 5, 2026.
In a Morgan Stanley "Sustainable Signals" Survey of 900+ institutional investors:
--> 86% of asset owners expect to increase allocations to sustainable investments in the next two years (due to strong financial performance).
--> 75% of investors expect physical climate risks to impact asset prices in the next 5 years. Thus, active ESG and adaptation engagements are now their priority to help moderate the negative impacts of climate risk on their asset values.
A modern example: A mid-sized hotel in Riyadh
Let us say that this Mid-Sized hotel has an annual electricity bill of SR 500,000. If we were to deploy technologies that include (but not limited to):
Cool-roof materials
Heat reflective coatings
High-performance glass
Rooftop solar PV systems
Solar water heating
Inverter ACs
The electricity usage can go down 20% or more, which is SR100,000 back to the business every year. Now just imagine that for the whole country and we are talking billions in savings, higher returns in the following years and a much stronger asset valuation impacts overall.
Now that we know ESG can have a massive impact, how does it apply to the various business sectors we have today?
Banking
Main Impact Driver: Capital allocation shifting toward decarbonization goals
----> E: Phasing out financing for fossil-fuel projects
----> S: Increasing lending access to underserved small-to-medium enterprises
----> G: Assign responsibilities for ESG targets directly to the board of directors
Outcome: Lowers default rates by backing sustainable, forward-thinking businesses
Infrastructure
Main Impact Driver: Building resilience for extreme climate change
----> E: Using low-carbon cement, cool-roofing green materials, and hydrogen reduced steel
----> S: Mandating pollution reduction plans and deploying more recycling waste programs
----> G: Requiring transparent bidding processes that include details of materials and sustainability factors
Outcome: Saves billions in disaster recovery costs by building structures that are resilient to climate change
Renewable Energy
Main Impact Driver: Managing rising supply chain growth ethically
----> E: Solar panel and wind turbine blade recycling
----> S: Eliminating unsafe mining practices for important raw materials like cobalt and lithium
----> G: Tracking raw material sources with high-tech systems such as blockchain to ensure they comply with ethical standards
Outcome: Advances global energy independence while creating millions of safe jobs for the sector
Healthcare
Main Impact Driver: Elevating patient safety and product quality across all stakeholders
----> E: Green sourcing prevents toxic chemical contamination of medical devices. Moreover, enforcing strict disposal protocols according to latest international standards
----> S: Ensuring clinical trials are performed with diverse demographics
----> G: Enforcing strict external compliance audits by top green-focused consulting firms worldwide
Outcome: Improves patient recovery times through safer medical devices and more accurate, un-biased medicine.
Education
Main Impact Driver: Modernizing educational institutions to be open to everyone regardless of economic status
----> E: Green infrastructure; solar-powered facilities, energy-efficient HVAC, sustainable waste management etc.
----> S: Expanding financial aid for working class communities
----> G: Appointing a diverse board with transparent stakeholder reporting that builds trust with parents, regulators and funders.
Outcome: According to a study by Deloitte in 2024, over 70% of education investors prefer funding schools with strong sustainability policies. By attracting investors & endowments, schools can further close the socio-economic wealth gap by unlocking high-quality learning for marginalized communities.
Hospitality
Main Impact Driver: Minimizing waste and water use in a booming sector
----> E: Utilizing the latest advancements in efficiency (including but not limited to):
Water fixtures with aeration that maintain same exact flow comfort yet reduce water use by up to 89%
IoT (Internet of Things) food waste trackers to minimize overproduction
Energy-efficient (ENERGY STAR), top rated appliances
IoT Energy Management Systems
Power over Ethernet (POE) technology for low-power devices such as LED lighting & occupancy sensors, which can reduce energy use by up to 20%
Solar Power
---> S: Source food from local farms to support local communities, reduce transport packaging and fuel waste. Further, continuous kitchen staff training on precise food portioning is a must.
---> G: Link executive and top management performance bonuses to measurable reductions in water consumption and food waste diversion rates. This keeps them motivated to continuously explore new trends and technologies.
Outcome: Huge cost savings while strengthening critical and speedy local relationships with vendors.
Information Technology
Main Impact Driver: Reducing energy use in ever-expanding, power-hungry data centers and safeguarding data privacy.
----> E: Incorporating the latest renewable energy technologies in IT infrastructure (including geothermal, green hydrogen fuel cells, wind and solar) to be low PUE
----> S: Partnering with top independent researchers to find any vulnerabilities in data security
----> G: Boards have to be responsible for allocating budgets for 'Green IT' - including decommissioning inefficient legacy servers, deletion of redundant & power hungry data, and mandating that all corporate hardware purchases meet strict environmental certifications (Energy star, EPEAT gold etc.)
Outcome: Significant cost reductions while increasing brand loyalty and trust by safeguarding data privacy.
Real Estate
Main Impact Driver: Elevating energy-efficiency in buildings to new levels while meeting strict new mandates (such as KSA's Mostadam)
----> E: Using various new green technologies and materials that improve efficiency and reduce operational costs (by up to 30%). These include, but not limited to:
Energy-efficient glazing (Low-E glass)
Autoclaved Aerated Concrete (AAC) blocks
Cool-roof Technologies
Solar Power where applicable
Recycled Steel
----> S: Increasing affordable housing projects and shared public spaces
----> G: Linking a portion of C-suite and top-level manager pay to verified reductions in energy-use and green-house gas emissions
Outcome: Raises property re-sale values while bringing down monthly costs for operators and occupants.
Agriculture
Main Impact Driver: Reviving rapidly declining biodiversity and improving water security
----> E: Significantly reducing the use of chemical fertilizers which degrade the life in the soil rapidly with time. Instead, this should be replaced with regenerative farming methods which include (but not limited to):
Cold composting with dry leaves, mowed grass, food waste and all other available surplus organic materials. This method builds a fungal-dominated compost which reintroduces a whole new life to our ecosystem
No-till farming which leaves soil undisturbed and keeps subterranean ecosystems intact
Free-range livestock (if present) which fertilizes the soil and enriches it, triggering deep root growth
----> S: Fair wages and safe working environments far from heat stress, chemical exposure and lifting of heavy machinery. Further, workers must be fully educated and immersed in regenerative farming benefits and procedures to work with full drive and awareness
----> G: Ensuring full traceability of crops from farm to shelf using advanced digital tracking tools like blockchain
Outcome: The best thing about rebuilding life in soil is the resiliency; rich soil is way more resistant to heat and water scarcity as it acts as a long-term storage tank. This leads to a rich, new era of regenerative farming, securing the global food supply chain against extreme climate changes and prolonged droughts.
