Three Little Letters = Big Impact
February 10th, 2017 = Joy Facos
Environmental – Social – Governance – ESG. These three letters seem simple enough on their own, but when you put them together, they potentially can have significant impact on a company’s reputation, bottom line, and long-term value.
Let’s take each of these areas one at a time.
A company’s approach to environmental responsibility is a good barometer of a company’s overall sustainability. To evaluate a company’s commitment to the environment, there are some key questions to ask. For example: Does the company have policies and systems in place to measure and reduce its greenhouse gas (“GHG”) emissions, toxic chemical use, waste generation and water use? Does it have recycling programs for both waste and water? Has it adopted renewable energy and energy efficiency measures? Does the company have procedures in place to minimize environmental accidents? How has the company performed in these areas?
While many environmental issues are more relevant for some industries (e.g. energy, utilities, manufacturing) than others (e.g. financials, health care, technology, retail), all industries can benefit from sound environmental practices. Such benefits can include reduced operating costs and fewer or no costly environmental incidents. A company may also see benefits related to the development and/or use of environmentally-friendly products, services and technologies.
As with environmental issues, corporate social responsibility issues are equally wide-ranging, and cover such areas as community involvement through philanthropy and volunteerism, fair treatment of employees, and a commitment to health and safety, diversity, and human rights. The myriad benefits that can accrue to a company that embraces social responsibility range from a positive brand image to being an employer of choice. Conversely, poor performance in these areas can be particularly damaging to a company in terms of potential fines, litigation costs and reputation.
Perhaps the area with the greatest impact on a company is governance. The board of directors and C-suite executives set the “tone from the top,” establishing priorities and policy, determining business practices, and charting the long-term course for the company. Good governance practices such as active stakeholder engagement, transparency, and robust mechanisms for oversight, responsiveness and accountability speak to a company’s commitment to good corporate citizenship overall.
To understand the steps a company is taking in each of these areas, it is important to have good information. It is not about window dressing or marketing spin – “greenwashing.” It is about real data, meaningful goals and measurable outcomes. Whether the information is provided in regulatory filings (e.g. 10-Ks, proxy statements, 8-Ks) or company publications (e.g. sustainability reports, corporate social responsibility reports, websites), it is all helpful in the evaluation of a company’s efforts with respect to sustainability and long-term value creation.
In short . . .
This brief overview highlights some of the ways ESG factors can have significant impact on a company. We recognize that it is impossible for a company to attain the ideal, that set-backs and accidents occur. However, for sustainable investors, it is the journey of continuous improvement that counts, bearing in mind that “sustain” means “maintain or keep going continuously” and “endure” for the long-term.
Thank you for visiting ESG Research Associates. We hope you’ll join us for future posts as we explore ESG issues in greater depth, discuss sustainable and responsible investing developments, and review notable trends.
Sustainable Development Goals: Whistling in the Wind or Opportunity for Future Growth?
March 20th, 2017 = Joy Facos
In September 2015, the United Nations adopted the 2030 Agenda for Sustainable Development which consists of 17 Sustainable Development Goals (“SDGs”) ( www.un.org/sustainabledevelopment ). These goals, which range from eradicating poverty to tackling climate change to achieving gender equality, build on the momentum established with the Millennium Development Goals. The SDGs are as audacious as they are critical to the world’s future health and prosperity.
The Role of Business
While world leaders are taking up the cause of the SDGs (Germany’s G20 Presidency has included them in its agenda for the 2017 summit in July), businesses around the globe have not yet fully embraced the SDGs. In a survey cited in The Guardian, most businesses are not addressing the SDGs, “despite experts pointing to the economic opportunities.”1 Part of the slow up-take is that beyond corporate philanthropy, building out a comprehensive business strategy that incorporates relevant global goals, like reducing water use, adopting renewable energy, and improving labor standards, takes time. However, time is of the essence if we are to achieve these ambitious goals by 2030.
Another hurdle to overcome is the concept that the SDGs or sustainable business practices in general are peripheral to a company’s main operations. On the contrary, SDGs are foundational issues that underpin future growth. In the words of Paul Polman, CEO of Unilever,
‘The Sustainable Development Goals are the fundamental cornerstone to secure future economic and business growth... It is not possible to have a strong, functioning business in a world of increasing inequality, poverty and climate change.’(3) 2
Once corporations on a global scale start building these goals into their business models,
we could start seeing serious progress toward achieving the SDGs.
Role of Investors
Investors, too, play an important role in helping move the ball forward. First, investors can seek companies that already incorporate relevant SDGs into their strategies. Investors can also encourage the adoption of sustainable business practices through proxy voting and direct corporate engagement. Finally, through these same avenues, investors can hold companies accountable for their actions - - or inactions.
I know, we hear a lot about Millennials these days. We should; they are the largest demographic group since the Baby Boomers. They are a major factor in global business growth as consumers, employees and investors. And they are paying attention. According to a 2016 study conducted by Corporate Citizenship, Millennials are setting the bar high for business:
Corporates need to show a public commitment to supporting sustainable development; demonstrate more focused engagement with a range of stakeholders, including investors, government, employees and suppliers; develop genuinely transformational new business models that scale social impact; accelerate innovation on products and services that address societal concerns; and deliver against their commitments transparently and with honestly[sic] authenticity.3
Given that Millennials will be gaining momentum as a major market force in the coming years, it makes sense for business to listen.
In short . . .
While the sustainable development goals might seem like nice “add-ons” in a corporation’s strategy, they have the potential to play a critical role in a company’s long-term growth. They could help fuel innovation, reduce costs, attract workers, and create new markets. I believe that companies that adopt sustainable business practices and incorporate relevant SDGs will not be whistling in the wind. They will be the companies that see growth on the horizon. More importantly, I believe by harnessing the power of governments, businesses, investors and consumers, we may be able make real progress towards these goals and achieve a more sustainable future for all.
1 Earley, Katharine, “More than half of all businesses ignore UN's sustainable development goals,” The Guardian, 9/30/2016.
2“Advancing the Sustainable Development Goals: Business action and Millennials’ views”, Corporate Citizenship, September 2016.
© 2017 ESG Research Associates