For years, Corporate Social Responsibility (CSR) was the tool that companies used to demonstrate that they were running sustainable business practices.
For some, unfortunately, it became a list of boxes to tick on the way to continuing business as usual, or merely as evidence of their concern for the environment and people.
The world has moved on – and so has the depth and breadth of corporate responsibility that is now required. That is where Environmental, Safety and Governance (ESG) comes in, with an increasing number of businesses recognizing its importance.
The three categories encompassed by ESG enable companies to measure the sustainability and the societal impact of their operations. More specifically, ESG fosters accountability within businesses for their impact on people, communities, and the environment. Where ESG exceeds CSR in this regard is that it focuses on ongoing impact with a long-term view in mind.
This is essential. For meaningful change to occur across either environmental, safety or governance arenas, progress must be made consistently over a long period of time. In this year alone we have seen evidence of the stark fact that there are not quick fixes to complex issues. Phenomena arising from climate change, and the sweeping impact of Covid-19, for example, have had ongoing impact throughout the year, with all predictions being that people and societies will be contending with their effects for the foreseeable future.
Considering ESG is not just the right thing for organisations to do. It also makes sense for businesses that want to appeal to their customers (and which don’t!). Evidence suggests that consumers are increasingly engaging with companies that demonstrate concern for communities and the environment at large. Research has further indicated the consumers will purposefully switch from a brand that is not environmentally aware to one that is.
Additionally, current employees and prospective talent are now more than ever prioritizing companies that are sensitive to the business’s impact and taking steps to reduce the likes of their carbon footprint, for example. For those companies aiming to attract top talent, their ESG record has become as important, if not more so, than the salary packages or bonuses they offer.
ESG is also increasingly being considered by investors when considering the viability of the overall value that a company offers. This is moving ESG into becoming a critical part of a company’s strategy, no matter how large the company may be. And failing to do so can have expensive, and far reaching consequences.
For example, when Facebook fell afoul of the Federal Trade Commission last year for its lack of compliance leading to the breach of 87 million users’ privacy, they were handed a $5 billion penalty. The damage was not just financial – the social media giant additionally had to agree to state-imposed operational restrictions.
What this means is that organisations can anticipate having to report on their ESG efforts moving forward. Additionally, ESG factors that may affect a company’s value will likely need to be disclosed to investors via its Annual Report.
Beyond ‘doing no harm’ the true winners are those companies that ‘do meaningful good’ on an ongoing basis, not for public relations purposes, but as an authentic expression of using their success to make a difference to the social and environmental concerns that matter. ESG plays a fundamental role in this enabling those companies to measure how well they are doing in that regard, and how much progress they may still need to make.