ESG stands for Environmental Social Governance. It’s often used in the context of sustainable or ethical investing, but more and more it has come to replace CSR (corporate social responsibility) as the go-to term for socially responsible business practices.
It covers the three main areas of concern that any business looking to create positive social impact should address.
The way a company responds to and impacts on environmental issues such as their greenhouse gas emissions, use of renewable energies, carbon footprint, and use of sustainable materials.
A company’s social impact in terms of the people whose lives their products and processes affect. This includes employees and workers throughout their supply chain, as well as customers, so issues such as pay equity, data protection, diversity and inclusion and employee treatment fall under this category.
The structure of a company’s executive decision making and board. Governance encompasses issues such as executive compensation, diversity and independence of board members, and legal structure.
ESG and CSR share a common aim, but use different methods to get there. The general consensus is that CSR has been an important stepping-stone to get the ball rolling in terms of understanding and acting on ethical and sustainable business practises, but now is the time of ESG, CSR’s more efficient and strategic younger sibling.
Writing for Forbes in 2019, Tine Thygesen predicted that ESG would overtake CSR as the ‘corporate vehicle for positive contribution’. This, she claimed, is ‘good news’, because ‘while CSR was often a disconnected department with limited resources, ESG is a fully integrated strategic objective that’s closely connected to the mission of the company’.
ESG aims to tackle one of the biggest shortfalls of CSR initiatives, the fact that, in a worst-case scenario, CSR could allow a company to make bold marketing claims without actually acting on their promises. Effectively, it has the potential to facilitate greenwashing.
ESG, on the other hand, is ‘measured, quantifiable and criteria-led’. Companies include an ESG score in their revenue reports to show exactly how hard they have been working to improve processes in these three areas.
This leads us to our next potential issue. There is no single, universally accepted standard for ESG measurement. Instead, we have a complex and confusing web of organisations working independently to define and create methods of reliable impact measurement.
Often, these methods turn to the UN Sustainable Development Goals, or the targets set by the Paris Agreement as a guide.However, while ESG is intended to be more quantifiable and clear-cut than CSR, there is still no clear solution to the question of impact measurement.
If you want to calculate your company’s ESG score right now, your best bet is to recruit an external organisation such as MSCI or Refinitv to help you do so.
The good news is that this might all change soon, as last year the IFRS (International Financial Reporting Standards Foundation) proposed the creation of a Sustainability Standards Board (SSB). This is a proposal that they are ‘well-placed’ to make due to their experience and expertise in the standard-setting process, as well as their ‘legitimacy in the corporate and investor community’ and ‘support from regulators all over the world’
Progress on the development of this single standard for ESG may be slow, but it is steady, with growing support for a new kind of ‘stakeholder capitalism’ from businesses and investors alike, and news that the ‘Big 5’ in impact reporting are willing to work together to support the project.
So, should you and your company care about ESG? In short, yes!
Far from being a fad or a passing trend, the conversation around ethical and sustainable business is only growing momentum. In 2019, Forbes reported that ‘almost 25% of investment in the United States now goes into ESG companies. Between 2016 and 2018, investments in such companies surged with 38% growth and now total $12 trillion, according to the US SIF forum for sustainable and responsible investment.’
The demand for greater transparency around ESG and CSR activities is no longer simply consumer- driven, it concerns investors, employees, suppliers, and even governments. If your organisation hasn’t already started to consider the ways in which its business practices affect environmental, social, or governance issues, now is the time to do so!
There are myriad ethical, sustainable and environmental concerns that your company could potentially address but you will have no significant impact anywhere if you try to support them all. Work out where your company’s practices have the biggest impact and start there. For example, a clothing manufacturer might want to look at their impact on the environment, or a marketing agency might want to examine how they support their employees with fair wages or learning and development opportunities.
While considering the causes and impact activities that your company should be focusing its attention on, it’s important to consider the individual interests of your employees.
As Forbes reports: ‘the most innovative companies make it easy, convenient, integrated and inclusive for employees, customers and partners to [give back] in relation to the issues they care about the most, and not just what is strategic for the brand.’
Using a platform such as Social Good Connect to implement an employee volunteering programme helps you do exactly this.
When looking to improve a company’s ESG score, it is a good idea to be guided by the organisations and experts who are already doing impressive work in this field.
We will always recommend the B-Corporation Movement’s B-Impact assessment as an incredibly useful tool to identify problem areas in your organisation alongside suggestions for improvement.
Likewise, the UN SDGs are an important resource aiming to align governments, corporations, and individuals to a set of core goals to work towards together. This is a great starting place to consider your impact activities and how well they work towards achieving any of these ambitious goals.
If you want further advice and information about how to improve the ‘S’ of your ESG strategy through employee volunteering, then please get in touch to find out how we can help you achieve your goals.
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