It’s all about ESG
Shelton Stat of the Week
In 2019 21% of B2B companies were pursuing sustainability primarily to ensure compliance with government mandates, policies, or guidelines.
Forget about sustainability and CSR. It’s all about ESG.
For the last two years I’ve been scratching my head about something: Americans have made it very clear that they want to buy from good companies. And when you ask them what’s good and who’s good they give a range of answers that lump together “good for the planet” and “good to people.”
Yet Corporate America has insisted on keeping those two things separate. The sustainability team has lived on an island by itself, or possibly in an EHS department, tasked with environmental compliance and reducing environmental impact – doing less bad, essentially. Meanwhile, the corporate social responsibility people have lived in another department, typically HR, and have been charged with spreading goodness – community projects, philanthropy, diversity and inclusion.
The separation hasn’t been good. It’s meant duplication of effort and competing messaging. In one case, we watched a bold company commitment flounder for over a year because it included both environmental and social impacts and the two separate departments struggled to determine who should “own” it.
This all changes with Environmental, Social, and Governance (ESG) as a framework, and that’s a good thing.
Or at least, it should all change. Here’s why:
- If you work in communications or sustainability at a publicly traded company, somebody on your executive team or your board is going to come to you very soon, if they haven’t already, and say, “Why is our (fill in the blank with the name of the rating agency here) score so low?” This is often, in my experience, how ESG gets on Corporate America’s radar. An investor or board member brings up one of the company’s ESG scores or a ratings agency reaches out to the right senior leader and starts asking lots of questions the leader can’t answer. Bottom line, as much as some companies are driven by purpose, all companies are driven by profitability. And when Wall Street starts asking questions they can’t answer, they move quickly to rectify that.
- There are dozens of ESG ratings agencies out there. (I’ve seen the number put at 100+, but there are 5-10 “usual suspects” that come up in conversations I have with senior company leaders – ISS, Sustainalytics, CDP, Bloomberg, RobecoSAM and MSCI.) I concur with the lamenting of folks who deal with these: it’s a lot to manage. They all ask different questions/are looking for different things, and one could spend half or more of their work time responding to and managing the ESG ratings process. The things is, ESG ratings are about companies being good across the board (on Environment, Social and Governance indices), much like Americans are already wired. So if you’re the sustainability person, you have to work with the CSR person and somebody in corporate governance (legal and/or accounting) to get the questionnaires answered. Better for that to all be streamlined in one department for sheer ease rather than scattered throughout an organization.
- And this isn’t just about “gamifying” the ESG scoring, which is kind of how it seems the C-suite often views it. Companies shouldn’t look at ESG scoring as a check-the-box exercise that they “handle.” They should look at it as a framework through which to manage climate risk and financial risk – a tool to steer the company to profitability. That’s why Wall Street is increasingly interested in ESG. It’s about money. Companies that have no idea what will happen to their supply chains and human capital when the waters rise will be caught off guard and unable to stay profitable through climate events. Companies that are aware of their risks and shifting and managing their organizations as a result are better investments.
This is all top of mind for me having just attended the GreenBiz conference last week. ESG was brought up many times, as was Diversity and Inclusion. My takeaway is that companies need to reorganize so sustainability, social good (including D&I) and governance all live in the same department under the same senior leader. And that leader needs to use ESG ratings, rankings and reporting tools as frameworks for managing their climate risks and driving their companies to profitability in a climate-resilient world.
Tiffany’s has officially risen to #4 on the list and, according to Barron’s, one of the top reasons for the rise is, “The jeweler can trace the source for up to 90% of its polished diamonds and it shares this information with its customers. Ninety-one percent of Tiffany’s business is in jewelry, with 57% of its products containing one or more diamonds, according to Calvert.” Additionally, Tiffany’s states that in 2018, 99% of raw precious metals purchased were traceable to U.S. mines or recycled sources. And it seems that the list also takes CSR into account when creating the list. In Tiffany’s case, the fact that 50% of their board is female, 82% of its energy use is renewable and even part time workers receive benefits, combined with their supply chain commitments, drove the company to the top of the list. “Companies that are focusing on operating sustainably, taking care of employees, creating a more diverse workforce, and giving back to communities tend to perform well as investments, Calvert has found.” Read more.
Purpose at Work: How Mars is Scaling Sustainability Goals Across Generations – Mars Inc, one of the largest privately-owned companies on the planet, commits $1 billion to becoming “Sustainable in a Generation.” Like Tiffany’s and other progressive companies who are combining their CSR and sustainability initiatives, Mars plans to, “Fund target-based greenhouse gas reductions, economic development and female empowerment initiatives. The company is also investing in health and environmental research, which helps build a better world and address environmental issues.” When asked why the company is dedicating so much money to these initiatives, it responds that it plans to prevail long into the future and understands that longevity depends on investing in initiatives that protect the planet while elevating the people on it. Top lessons from Mars on how to become a sustainable company include: Measure your footprint, use data for long-term planning, implement purposeful principles and collaborate with suppliers. Read more.