Environmental, Social, Governance (ESG) is one of the hottest business topics right now. This is evidenced by the fact that over 90% of S&P 500 index companies are reporting against ESG activities, according to Lisa Stewart, Principal in Charge of the EisnerAmper (Center for Individual and Organizational Performance as well as the Center for Family Business Excellence, who recently led a 3-part workshop with IMEC about ESG.
She leads EisnerAmper’s ESG activities and oversees go-to-market ESG initiatives. The company works with many clients around the country, helping them navigate through the complex process of learning more about ESG, planning and implementing initiatives, and gauging the ramifications to their business.
Stewart was inspired by books and current events involving social and environmental issues to offer her clients opportunities to have in-depth conversations about business structure, purpose, and impact which led to the whole practice of Corporate Social Responsibility (CSR) which has already started to morph into ESG.
The Importance of Incorporating ESG into your Business Strategy
According to Stewart, more domestic companies are embracing ESG for several pragmatic as well as altruistic reasons.
Customers – Consumers are looking for companies that have ESG policies, practices , and standards in place. If you are supplier to a larger organization, they're going to be asking you for evidence of your ESG strategy
Financial Capital—Investors are looking for companies with an ESG policy methods to follow it and track results in place because of its importance to prospective customers and talent as well as the liability associated with potential litigation. While the movement is far better established in Europe than it is in the US, Stewart expects US banks to adopt European verification of ESG policies to adjust lending relationships and interest rates. Companies that don’t develop such policies in advance of seeking debt or equity financing will find themselves hard pressed to compete for capital.
New Employees – If you want to be able to attract the best and the brightest of younger talent coming out of universities, have good answers to their tough questions about your ESG policies and practices.
CSR vs. ESG—Compare and Contrast
Stewart encourages businesses to be mindful of the broader perspective and to distinguish between CSR and ESG. The difference between the two is that the former has a primarily internal perspective, while the latter has an external perspective with validation.
CSR sought to transcend mere profit and extend the stakeholder array beyond employees and customers. It focused on internal alignment of stated priorities (corporate values) with strategic goals, actual operational practices, and their stakeholder impacts.
However, without objective, widely recognized industry validation standard, the process ran the risk of involving more talk than action. Under the CSR regimen, companies might say the right things without actually doing them. Accountability for the impacts of corporate actions was lacking.
ESG is to CSR as ISO Standard is to Total Quality Management (TQM)
Manufacturers will relate to Stewart’s analogy comparing ESG to the emergence of ISO 9001, an international standard that allows companies to report and verify against international regulations and validation, to document and quantify production of quality products against TQM.
ESG was designed as an outward-facing regimen of objective, measurable, stipulated standards to validate and verify reductions in impacts such as carbon footprint or carbon output.
The Birth of the CSR Movement
While books such as Upton Sinclair’s The Jungle engaged and enraged the public on the subject, CSR entered the corporate conversation in the 1950s when author and economist Howard Bowen raised the issue of what responsibilities businesses must contribute in a positive way to society, leading companies to examine their social consciences.
The CSR movement gained momentum in the wake of environmental calamities such as the Exxon Valdez Alaska oil spill, and nuclear pollution dramatized in the film Silkwood. These sorts of events spurred individuals, communities, and organizations in the private and public sectors to collectively conclude that enough is enough, and that regulations were in order to protect people, communities, the environment, and the planet.
To this day, the movement continues to gain a stronger voice in both the private and public sectors on a global basis. Many organizations are facing some of the risks associated with climate change and other environmental issues, as well as the impacts of COVID-19.
According to Stewart, an organizational psychologist by training and trade who not only works with family owned and closely held manufacturers but has herself owned multiple companies, it's incredibly important to share best practices about the concepts of corporate social responsibility, how company owners can do a really good job of building strong and sustainable companies and still do good by the things that matter to them – their employees, communities, and the environment.
Stay tuned for the next post that will address how Illinois manufacturers can navigate their ESG journey.
ICYMI: Watch all 3 of the BE THE CHANGE workshops on-demand:
Session 1: Corporate Social Responsibility – Doing Good to Do Better
Session 2: Incorporating Corporate Social Responsibility into Your Brand