Major brands are outdoing each other when it comes to ESG (environmental, social and governance) goals. Companies are increasing their sustainability commitments while replacing their existing corporate goals with impressive new ones. A robust and credible ESG program can open up access to large pools of capital, build a stronger corporate brand and promote sustainable long-term growth benefitting companies and investors.
- What are the differences between social enterprises, socially responsible businesses, conscious capitalism, sustainability, and ESG? As a social entrepreneur, how would you prioritize these objectives?
- How can companies avoid accusations of “greenwashing?” How important are appropriate ESG framework criteria, establishing and measuring metrics on a regular basis, and publicly sharing the information to establish sustainability leadership?
- Startups are increasingly embracing ESG issues. Is this to attract investors? Invest in the subjects that matter to them most? Align their investments with their values? All of the above?
- Today, 85 percent of U.S. investors express interest in sustainable investing strategies and a 2019 CGS survey found that more than two-thirds of respondents consider sustainability when making a purchasing decision.
- BlackRock claims that, as of 2018, over $1 trillion have been specifically invested in mutual funds and ETFs that are tied to metrics quantifying ESG impacts; it also projects that by 2028, ESG assets under management will eclipse $2 trillion.
- Companies should not try to be all things to all people. Rather, identify three to five measurable ESG criteria that are material to your businesses, your constituencies, and are aligned with your corporate strategies.
Historically, many companies have excelled at setting ESG goals, but come up short when it comes to tracking progress on their commitments, building on accomplishments, and establishing credibility.
Reducing energy consumption is an exception, with many companies making commitments and tracking their progress in this segment. For example, PepsiCo recently said it is moving to 100 percent renewable electricity in the U.S., substantial progress towards its previously announced goal to cut greenhouse gas emissions by 20 percent by 2030.
Many of the world’s largest brands employ third-party rating systems like LEED and WELL and track and measure energy and water usage, transportation and waste impacts and health and wellbeing, among other factors, in their corporate offices, manufacturing facilities, and retail locations.
Smaller companies can begin by tracking small commitments like switching to LED lighting or smart thermostats or going even further and installing solar technology.
Companies that are serious about sustainability and ESG, embed these issues in the core of their business, a message that resonates well with stakeholders. BlackRock, the world’s largest investor, committed to combatting climate change by making “sustainability integral to portfolio construction” and will avoid companies that “present a high sustainability-related risk.”
Microsoft announced plans to be carbon negative by 2030 and is also investing $1 billion in tools and technology that will likely help countless others in efforts to reduce carbon output.
By making sustainability part of the business plan – having the CEO, company leadership and the board all invested while also engaging employees, customers, partners, the community and other stakeholders – establishes a company as a leader among peers.
According to the Harvard Business Review, the key to the new generation of sustainable investing is that it focuses only on “material” ESG issues that impacta firm’s valuation—for example, greenhouse gas emissions are material for an electric utility company but not for a financial services firm; supply chain management is material for an apparel company using low-cost workers in developing countries but not for a pharmaceutical company.
Some ESG issues don’t affect a company’s bottom line but still impact society at large. A growing segment of the investment community is interested in those impacts—and willing to allocate capital to firms that actively work to benefit society. The challenge for companies wishing to attract these investors is that there is currently no agreed-upon way of measuring a firm’s “externalities”—the positive and negative effects of its products and services on society.
The Journal of Index Investing says that entrepreneurs breed ESG-rich companies. Their research concludes that entrepreneurial organizations develop stronger governance traits compared with “typical” companies. Perhaps, in part, because the cause represents more than financial rewards, entrepreneurial owners pursue a more focused perspective shared by key stakeholders.
Consistent with a long-term, value-creating orientation, entrepreneurs forgo immediate rewards and devote enormous resources to advance their vision.