Addressing the Social Aspect of Environmental, Social and Governance
Environmental, Social and Governance (ESG) are no longer just a set of standards important to investors. Employees, customers and clients also care about these issues, and they are voicing their support or displeasure for how companies are addressing them.
During the recent webinar, Solving the Social in ESG, Cision’s Justin Ruiss, Investor Relations Activation Director, and David Beffert, Insights’ Senior Director of Strategic Operations, discussed the importance of ESG analysis and reporting. They looked at how companies can effectively address their social impact, which has historically been the most underreported pillar in the ESG framework. Curious to know what they concluded?
4 Considerations for Solving the Social in ESG
- Understand that authenticity is essential. In light of the #MeToo movement, the murder of George Floyd and companies’ subsequent widespread acknowledgment of Black Lives Matter, Beffert points out that these events have made the “S” in “ESG” an equal partner to the “E” and “G.” However, companies can no longer get away with voicing support for these issues and then dropping the ball on taking any further action. Nor can they commit to improving their social engagement but never follow through with meaningful progress. Social is helping stakeholders hold companies accountable for their actions, and they’re not shy about voting with their feet. Consequently, companies must take concrete, measurable action on their social strategy or risk losing customers, employees and investors.
- Acknowledge the widespread acceptance of ESG. Prior to 2020, some companies might have been reticent to speak out and take a stand on social issues. However, the pandemic and racial reckoning changed all of that. Now, companies are more likely to alienate customers or clients by staying silent than by voicing support for social issues. Stakeholders are expecting—and in some cases demanding—companies to address these issues from within.
- Increase diversity to improve performance. Creating a more diverse workforce isn’t just the right thing to do; the data show companies that increase diversity within their organization improve their performance. As more companies understand the benefits of a more diverse workforce, they are more likely to increase their diversity efforts.
- Show investors your commitment to ESG. Like it or not, investors have a certain level of control over your ESG narrative. If they evaluate your ESG initiatives and don’t like what they see, they will deem your company a “risk” and pull out their money. Institutional investors are even impacting the boardroom, as seen in the recent case of BlackRock, Vanguard and State Street’s support of a little-known hedge fund, Engine No. 1, in its effort to compel Exxon Mobile to reduce its carbon footprint. If public companies don’t successfully demonstrate their ESG commitment, they can expect more of these battles to come in the future.
Historically, the “S” in “ESG” has not been well-defined by companies or investors. However, social impact should be considered at the highest level, along with governance and environmental impact. Showing actionable commitment to your social initiatives will strengthen your relationship with your most important stakeholders.