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The business buzz around environmental, social and governance (ESG) — that is, how a company approaches protecting the planet, supporting communities and adhering to beneficial regulations — is louder than ever. Investors and customers alike are assessing companies based as much on their ESG efforts as they are on financials. There's a good reason for that: Current generations are well aware they face a climate crisis their parents and grandparents didn't.
Many big names lead the sustainability charts. Those charts might not represent a true picture of ESG success or influence, however. Research shows that investor judgments about sustainability are often subjective and based on "winging it" analyses. Many businesses are basically not doing what they said they would, "greenwashing" themselves and presenting themselves as more committed to ESG than they actually are. Despite 90% of surveyed employees describing their companies as diverse, as much as 30% also report they don't have a sense of belonging or inclusion. That gap between what people want and what companies actually do comes with real risks, including poorer performance (loss of quality, quantity or efficiency) and the loss of investor support.
With the high demand for real ESG results, and with employees, investors and customers all getting burned on the quest for ethical results, the big question is clear: How can your company actually walk the walk with ESG so profits merge with making a real difference?
Actually, ESG Isn't a New Thing
Many responsible businesses have been incorporating ESG practices like recycling and pay equity for years.
When I first heard of ESG, I had to look up what it meant. I dug in to see what was involved. Benefits, working conditions, community...wasn't I already prioritizing these things, just because I care and have a good set of core values? It seemed to me most successful executives were already including ESG-oriented initiatives, such as health and safety, into their operations. Newer conversations, like renewable fuels and diversity, have made ESG into a household acronym over time.
The difference now is we have a framework for leadership and ESG values. That framework helps hold everyone accountable and steers us in the right direction. It also formalizes all the elements needed to assess results and verify financial returns. ESG encourages businesses to operate within clearer lines, too.
How to Truly be an ESG Company
Part of ensuring you're a legitimate ESG company is pushing yourself to be more specific with your claims. Don't just say you pay based on performance. Do pay impact studies on gender and diversity and apply the findings to your payroll. Specificity has a great way of making evaluation and accountability much easier.
Second, be willing to ask yourself some tough questions, such as:
• Have we done a gender gap/equity review?
• Are we governing our capital expenditures properly?
• In what ways are we allowing people to work (in-office or remote), and how does that reflect our ESG values (smaller offices or less transportation pollution)?
• Are ESG values reflected in our policies and procedures at every level?
• What checks and balances or due diligence steps do we have for ESG initiatives?
• What are people saying about our ESG efforts?
External auditors can help you through this assessment. But I find self-audits are more authentic. They ensure that, instead of someone else telling you what you "should" be doing, you identify ESG goals that genuinely matter to you. Find one to three things you really want to move the needle on and commit to them.
Your goals within ESG can shift over time. During COVID-19, we put more resources behind protecting employees' mental health because we saw how challenging the pandemic was for people. We have initiatives now we didn't have three years ago. See your framework development as ongoing and you'll always be able to meet people where they are.
Becoming an ESG Company is Well Worth it
I sincerely believe following ESG values is the right thing to do. But even if you set ethics aside, the numbers make it clear that ESG benefits the bottom line, and your odds of success are higher if you adopt an ESG focus.
This boost comes from the fact that ESG frameworks help clarify your company vision so your team becomes more aligned. Greater alignment and understanding of purpose usually translates to happier, more productive people.
Also, consumers are finding their voices. They're not afraid to vote with their wallets. They're already walking away from companies that greenwash and toward businesses that are the real ESG deal. Reflected statistically, in 2018, people in the United States spent $128.5 billion on sustainable fast-moving consumer goods, and 48% of American consumers said they'd "definitely or probably change their consumption habits to reduce their impact on the environment." Put another way, they are realizing the newfound power they have to direct business, and it's the companies that are working for authentic, two-way relationships that are doing the best.
Lastly, investors are screening companies ahead of time for solid ESG strategies because they know that's where the consumers are going. They see ESG companies outperform their non-ESG competitors and want to invest where risk is lower. The government connects to these movements. Legislators are trying to make it easier for investors to move toward ESG, not only in the U.S. but in other areas of the world too.
If You're Willing to Work, ESG Will Deliver for You
Good leaders have always reflected ESG values and practices. Today, though, being a truly ESG company means asking more specific questions, digging deeper to find the true answers to those questions and making sure your values and practices are keeping up with what employees and consumers need now. Analyses are quantitatively demonstrating that going through this work and walking the ESG walk can put your company in a better financial and competitive position. Don't be afraid to make significant changes and investments, because the returns are promising.