By Matt Deptola, senior manager, ESG Services at Brixey & Meyer
ESG gets a lot of heat in the media for being too “woke,” “political,” and “trendy.” What these attention-grabbing headlines fail to acknowledge is the underlying reason the corporate sustainability framework exists: to promote stronger risk management practices and to identify opportunities for operational improvement.
At its core, Environmental, Social, and Governance is a tool to complement an organization’s strategic plan. The framework uses the ‘E’, ‘S’, and ‘G’ pillars to provide a different lens for thinking about business: one that looks further into the future, strongly considers stakeholder feedback, and looks at the aforementioned factors to strengthen the resiliency of the business.
The foundation of an ESG strategy is developed by completing a Materiality Assessment, which we’ve covered in a previous newsletter. This process creates alignment between a business and its most important stakeholders on which topics should be focused in the next 5-10 years.
Common topics might include:
Environmental: energy management, waste management, access to natural resources, and greenhouse gas (GHG) emissions
Social: employee engagement, customer relations, worker health & safety, diversity & inclusion, and product quality & safety
Governance: business continuity, succession planning, cyber security, stakeholder engagement, and board effectiveness
By focusing on performance in ESG areas, like those listed above, a business can create meaningful improvements in its operations and risk management that drive financial value for the company. Improvement in these areas then creates a byproduct of societal benefit.
Energy management ➡️ less usage of utilities ➡️ less cost ➡️ less GHG emissions
Waste reduction ➡️ less wasted materials ➡️ saved cost ➡️ energy savings from reduced production & less GHG emissions from trash disposal
Employee engagement ➡️ higher retention ➡️ reduced cost from turnover & higher productivity ➡️ more stability of work
Cyber security ➡️ fewer number & reduced intensity of attacks ➡️ saved recovery costs & less downtime ➡️ protected customer & employee data
As Bank of America CEO Brian Moynihan said at the World Economic Forum in mid-January, “CEOs view ESG goals such as combating climate change and making their workforce more diverse as integral to the long-term health of their companies. They’re going to run the companies based on a view of how to create long-term value and I don’t think that gets derailed” by politics.”