ESG has been important to companies and to investors
What is ESG?
A comprehensive definition from ADEC
Environmental risks created by business activities have actual or potential negative impact on air, land, water, ecosystems, and human health. Company environmental activities considered ESG factors include managing resources and preventing pollution, reducing emissions and climate impact, and executing environmental reporting or disclosure. Environmental positive outcomes include avoiding or minimizing environmental liabilities, lowering costs and increasing profitability through energy and other efficiencies, and reducing regulatory, litigation and reputational risk.
Social risks refer to the impact that companies can have on society. They are addressed by company social activities such as promoting health and safety, encouraging labor-management relations, protecting human rights and focusing on product integrity. Social positive outcomes include increasing productivity and morale, reducing turnover and absenteeism and improving brand loyalty.
Governance risks concern the way companies are run. It addresses areas such as corporate brand independence and diversity, corporate risk management and excessive executive compensation, through company governance activities such as increasing diversity and accountability of the board, protecting shareholders and their rights, and reporting and disclosing information. Governance positive outcomes include aligning interests of share owners and management, and avoiding unpleasant financial surprises.
ESG is and will continue to be important but it covers so many areas that it often feels unfocused and is often a something that has a section in an Annual report, a check box that must be marked and though essential to a healthy business is seen as a “nice to do” or a “we have to do” versus its the competitive advantage that will drive increased customer loyalty, enhanced attraction and retention of talent and increased financial value to owners and shareholders.
Today amidst the triple crisis of health, economic and social unrest reflected in Covid-19, 40 million unemployed and Black Lives Matter a more clarified and focussed ESG should be Employees, Society and Government.
Before a company spouts about purpose, values, doing good, how about focussing on the following three questions
Employees: Is the company ensuring security for your employees by paying a wage that allows them to have disposable income after they cover living, health and student debt ? Are you providing adequate health care and and an environment that does not put their physical or mental health at risk? Does your firm have diversity across the company and do people feel safe in speaking up ? Are you investing in training ? Most importantly are employees a cost or also an asset ? Learn more about what PayPal has done in this area.
The most critical asset a company really has is its workforce. My four decades of experience and years of research for my book Restoring the Soul of Business: Staying Human in the Age of Data indicate that its employees who create the brands, the ideas, the experience that make a company and the only way a company improves and transforms itself is by growing the skills and unleashing the talents of its people.
Today employees are more stressed than ever and over the next few years companies will be made or broken based on what they do and did in 2020.
Society: We have always lived in a connected world but over the past few years we are more connected than ever due to search that allows us to connect to information, e-commerce that enables us to connect to anywhere to transact, social networks that connect us to each other and mobile phones that connect us all the time. No wonder that the key connecting companies of Google, Amazon, Facebook and Apple are four of the most valuable companies in the world.
While many of these were funded by advertising and ran AOS (Advertising Operating Systems) or IoS ( Apple) the reality is they are now Society Operating Systems and have to manage themselves and be governed as such. But increasingly due to their scale, scope and balance sheets more and more companies from Walmart to CVS to Starwood’s decisions change society. What are the implications on Society of your firms business decisions? Often the secondary effects of optimizing for business creates huge problems for society. Just look at Facebook which appears to finally recognize that they moved too slow, too selfishly, too narrowly to fix things after moving fast while breaking things?
How can your company understand both what the ill effects might be to society but as importantly what good can one do for society as Walmart unleashed its logistics often after a hurricane. Society is often the community that companies are based in or their employees live and where their customers make their life.
Government: If there is one thing that Covid-19 has shown is that government matters. The quality of governance matters. A 4 trillion dollar ( 18 percent of GDP) healthcare system leaves 40 million uninsured, cannot get masks and PPE to folks. Even the University of Chicago wonders how to save Capitalism from the Capitalists. Government has been underfunded, demonized and lobotomized via lobbying.
Businesses must recognize that earning billions and paying peanuts in taxes eventually means no infrastructure, no public schools and much more. Running to government when things get tough but starving them when things go well is not aligned with purpose values and other high thoughts that galavant and roam free on corporate websites.
So every corporate leader, HR honcho, purpose driven person in a firm should ask?
Are we looking after our employees?
Are we thinking about society?
Are we helping government including paying taxes ?
The Employee, Society, Government focus will need to be done first in order to truly realize Environment, Social and Governance goals.
Today more and more customers care a lot about how you are looking after your employees and caring for society. If you are a senior manager go spend some time with your employees in their 20s and 30s and you will learn they truly care about purpose, values, fairness and this impacts their decision to stay or leave your company and much more.
From Patagonia to Paypal companies that do the right thing have the right results. By focussing on the story of people, society and culture they deliver the results they need for the spreadsheets.
Focus on the ball, the playing field and the player and the scoreboard will show you end up being a winner.
Rishad Tobaccowala ( @rishad ) is the author of the bestselling “Restoring the Soul of Business: Staying Human in the Age of Data” published by Harper Collins globally in January 2020. It has been described as an “operating manual” for managing people, teams and careers in the age we live in. Rishad is a sought after speaker and advisor who helps people think, feels and see differently about how to grow their companies, their teams and themselves. More at https://rishadtobaccowala.com