Environmental, Social and Governance (ESG) - Principles and Practice · Environment

Introduction to Environment and Environmental Issues in ESG

Updated 11 October 2026 · Fact-checked

Environment is the sum of all living and non-living things around us, including air, water, land, plants, animals and people. In ESG, the environmental pillar looks at how a company affects and depends on nature. To answer questions, define the term, list components, then explain issues with business impact and a response.

Understand Introduction to Environment and Environmental Issues

Environment means everything that surrounds an organism and affects its life. It includes natural things such as air, water, soil, sunlight, plants and animals. It also includes human-made things such as buildings, roads and factories, and the social and cultural setting in which people live.

You can group the environment into components. The abiotic components are non-living: the atmosphere (air), hydrosphere (water), lithosphere (land and soil). The biotic components are living: the biosphere (plants, animals, microbes and humans). These parts are linked. Polluted water harms fish, and loss of forest changes rainfall and soil.

In ESG, the E pillar asks how a company uses natural resources, what it releases into the environment, and how it manages the risks that nature creates for its business. Examples are energy use, emissions, water use, waste and effect on land and wildlife. A company both depends on the environment (water, raw materials) and affects it (emissions, effluents).

Four major issues are tested often. Climate change is the long-term shift in temperature and weather patterns, driven mainly by greenhouse gas emissions from burning fossil fuels, industry and land-use change. Pollution is the release of harmful substances into air, water or land, and also covers noise and plastic. Biodiversity loss is the decline in the variety of species, genes and ecosystems, caused by habitat destruction, overuse and pollution. Resource depletion is using up natural resources such as water, minerals, fossil fuels and forests faster than they renew.

For a company, these issues create risk (regulatory penalties, higher costs, supply disruption, reputation damage) and opportunity (efficiency savings, new green products, cheaper finance). This business link is what the examiner wants you to show.

Key rules to remember

Components of environment: Environment = Abiotic (atmosphere + hydrosphere + lithosphere) + Biotic (biosphere); Some texts add a human-made or social component. Mention it as an extension if the question asks for a wider view.
Four major issues: Climate change | Pollution | Biodiversity loss | Resource depletion; Use this as a ready list in any question on environmental issues.
Answer frame for each issue: Meaning → Causes → Business impact → Response; Applying the same four-part frame keeps long answers structured.

How to solve Introduction to Environment and Environmental Issues questions

Use this method for definition, explanation and case-based questions on this topic.

1Read the question and mark the command word: define, explain, discuss, examine or advise.
2Start with a one-line definition of environment or the issue asked.
3List the relevant components or issues in short points, using the abiotic and biotic split where needed.
4For each issue, give cause, effect on the environment, and effect on business.
5Link the point to the E pillar of ESG, such as emissions, waste, water or biodiversity.
6If a case is given, pick facts from it and tie each to an issue, risk and action.
7Close with a short conclusion or recommendation, such as policy, monitoring or disclosure.

Quickest way: D-C-I-R in four lines

When to use it: Use when time is short or the question carries few marks.

D: Define the term in one sentence.
C: Name the components or causes in three or four bullets.
I: State the impact on the company: cost, legal risk, reputation.
R: Give one response, such as cutting emissions, treating effluent or reporting.

Common mistakes in Introduction to Environment and Environmental Issues

Treating environment as only nature and ignoring human-made and social surroundings.
Students recall the school definition of air, water and land only.
Fix: Add one line that environment also includes human-made and social surroundings, then list the natural components.
Mixing up abiotic and biotic components.
The terms sound alike and students memorise without examples.
Fix: Remember abiotic means non-living (air, water, soil) and biotic means living (plants, animals, humans).
Writing climate change and pollution as the same thing.
Both involve emissions, so students blur them.
Fix: Define climate change as a long-term shift in weather patterns and pollution as release of harmful substances. Note that they overlap but are different.
Describing issues only in scientific terms with no link to business.
Students copy general environmental science notes.
Fix: Add a line each on risk, cost, regulation and reputation for the company.
Giving a list of issues without causes or responses.
Students run short of time and write only headings.
Fix: Use the Meaning, Causes, Impact, Response frame even if each part is one line.

Worked examples

Example 1

Explain the concept of environment and describe its main components. (Short answer)

Show the solution

Define: environment is the sum of all living and non-living things and conditions surrounding an organism that affect its life.
Split into abiotic components: atmosphere (air), hydrosphere (water) and lithosphere (land and soil).
Add biotic component: biosphere, covering plants, animals, microbes and humans.
Mention that human-made and social surroundings such as cities and industry also form part of the wider environment.
Link to ESG: a company draws resources from these components and releases waste into them, so it must manage its impact.

Answer: Environment is everything around an organism that influences it. Its components are abiotic (atmosphere, hydrosphere, lithosphere) and biotic (biosphere), along with human-made and social surroundings. Under ESG, a company must manage how it uses and affects these components.

Example 2

A textile company in Tiruppur discharges untreated dye effluent into a nearby river and uses large volumes of groundwater. Local farmers complain and a regulator issues a notice. Identify the environmental issues involved and advise the board. (Case-based)

Show the solution

Identify issues: discharge of untreated effluent is water pollution; heavy groundwater use is resource depletion; harm to river life may add to biodiversity loss.
Impact on business: regulatory notice, possible penalties or closure orders, higher water costs, community conflict and reputation damage.
Advice on pollution: install an effluent treatment plant and reuse treated water where possible.
Advice on depletion: measure water use, set reduction targets, adopt water-efficient dyeing and consider rainwater harvesting.
Governance: assign board oversight, monitor compliance with pollution control norms, and disclose environmental performance.
Conclude that acting early lowers legal and reputational risk and supports long-term operations.

Answer: The facts show water pollution, water resource depletion and a likely biodiversity effect. The board should treat effluent, cut and recycle water use, set board-level monitoring, and disclose performance to restore stakeholder trust and reduce legal risk.

Exam tips

Open every answer with a crisp definition; examiners reward it and it anchors the rest.
Always connect an environmental issue to a business consequence, because the paper is ESG focused.
In case questions, quote facts from the case and tag each to an issue before advising.
Use bullet points under the Meaning, Causes, Impact, Response frame to keep long answers readable.
Do not memorise statistics; clear concepts and examples earn marks without risk of error.

Practice questions from Environment

Introduction to Environment and Environmental Issues in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Introduction to Environment and Environmental Issues: frequently asked questions

What is the environmental pillar of ESG?

It covers how a company uses natural resources, what it emits or discards, and how it manages climate and nature related risks. Typical topics are energy, emissions, water, waste and biodiversity.

What are the components of environment?

The abiotic components are atmosphere, hydrosphere and lithosphere. The biotic component is the biosphere of living organisms. Wider views also include human-made and social surroundings.

What are the major environmental issues for companies?

Climate change, pollution, biodiversity loss and resource depletion are the main ones. Each creates risk through regulation, cost and reputation, and also creates opportunity through efficiency and green products.

How should I write an answer on environmental issues?

Define the issue, state causes, explain impact on the business and give a response. Keep each part short and add a conclusion. This structure suits both theory and case questions.