ESG refers to business leader’s focus on Environmental, Social and Corporate Governance in relation to their long-term plans. What can a focus on ESG mean to your business or profitability?
In 2017, over 140 CEOs from the World Economic Forum International Business Council (IBC) issued a “Compact for Responsive and Responsible Leadership”. The CEOs developed a framework that companies can use to track and demonstrate long-term sustainability. This compact aligns corporate goals to the long-terms goals of society and identified Sustainable Development Goals (SDGs) as the roadmap for that alignment.
In our February and March blog posts, you’ll find an overview of the 4 pillars of ESG, and what they can mean for your business.
The 4 pillars of ESG (Environmental, Social, Corporate Governance) that will be covered in this series of 4 blog posts are:
Part I: Principles of Corporate Governance
Organizations understandably consider their purpose as the center of their business. The IBC suggests that the principles of agency, accountability and stewardship are also vital for good corporate governance.
- A sustainable business purpose: taking societal goals into account. Are the sustainable development goals (SDGs) clearly communicated? Are responsible policies and training programs in place regarding gender equality, diversity and ethical behavior?
- Stakeholder engagement: delivering value for stakeholders as well as other shareholders. Is there a culture of recognition at the company? Is a formal, documented and effectively designed reward & recognition program in place? What is the level of employee engagement? Higher employee engagement drives increased economic benefits for shareholders and stakeholders alike.
- Governing board / Oversight: Is the Board or other governing body diverse, representative of society in terms of economic diversity, executive and non-executive, experience and competence in ethics and other current topics and concerns that will help to drive the direction of the business? Are there reporting mechanisms in place for corruption or ethical issues? Has a risk analysis been performed – in terms of threats to the business but also including cyber security and other emerging risks? Is workforce safety a factor? Is there a formal safety program in place?
- Measurement systems: Identifying consistent metrics and using them wisely and strategically remains a challenge. To help, the IBC (through the World Economic Forum) developed two sets of metrics that companies can use when preparing their annual reports:
- Core metrics: a set of 22 well-established metrics and reporting requirements that focus primarily on activities within an organization’s own boundaries, and
- Expanded metrics: those that are less established and have a wider scope. These represent a more advanced way of measuring and communicating sustainable value creation.
- Employee engagement, recognition/rewards programs are an effective way to focus employee attention on corporate goals.
Companies today are facing challenges that include workforce issues, climate change, societal expectations – in the midst of a pandemic! The IBC suggests that companies can include the interests of their stakeholders and thrive “through greater commitment to long-term, sustainable value creation”.
For more information on ESG and its impact on your business, register below for the “The Connection Between EE & ESGEmployee Engagement & Environmental, Social, Governance” webinar event.
And stay tuned for Part 2 in this series where we will cover the 2nd pillar of ESG: The Planet.