ESG - What is it?

What the heck is ESG, what does it mean for our organization?

Environmental, Social, and (Corporate) Governance is a term bandied about mostly in the large-scale corporate investing communities; but make no mistake… it is coming to all businesses large and small.

ESG probably originated on Wall Street, as it is an initiative that is meant to achieve “sustainable” investing. It provides a set of standards to gauge the environmental, social and stakeholder-related risks of a potential investment. Analysts and investors evaluate organizations using ESG criteria before investing to gauge and hopefully avoid non-financial risks. Our customers already understand that a black swan event is usually catastrophic for the organization.

The hypothesis is that satisfying ESG criteria will further reduce the risk of black swan events and therefore ensure prosperity. Studies have shown that organizations that accounted for ESG standards saw a higher return on equity than organizations that did not account for ESG.

ESG applies to public companies today, but private equity firms are also demanding compliance. And it won’t be long before these larger companies expect ESG conformity of their subcontractors and suppliers.

Talk of ESG is today also mostly confined to boardrooms and executive suites, but the requirements are numerous, and so assignment of ESG responsibilities will undoubtedly find their way down organization charts to beleaguered compliance managers.

You might be disillusioned that yet more requirements are being imposed on your organizations and already-strained compliance management team. Take heart; it is not as much of an added burden as you might imagine, and Workhub customers are well positioned to satisfy the new requirements that come with the ESG movement.

The Environmental Factor

The E in ESG investigates your organization’s impact on the environment and sustainability initiatives. Examples of environmental factors include waste generation, carbon emissions and treatment of animals. Does your organization pollute? What initiatives do you have in place in order to prevent spills? Incident reporting is a common best practice of course, since the impact of any environmental damage should be investigated to prevent future incidents. Assigning training courses and standard operating procedures are arguably more important though since they are your proactive, preventative measures.

The Social Factor

The S in ESG looks at the nature of your organization’s relationships and values. That includes your relationship with customers and the community in which you operate, as well as your attitudes towards social issues such as diversity, inclusivity and human rights. Are your employees encouraged to give back to the community? Does your company’s workforce include people of various genders, races, and religions? Obviously tracking diversity metrics such as underrepresented ethnicities and gender inclusion in leadership is a great place to start. Enabling Workhub’s Whistleblower component would also be a great step towards rooting out discrimination.

The Governance Factor

Lastly, the G in ESG refers to corporate governance, and it relates to management of the organization’s internal relationships. The obvious elements are auditing and compliance, protocols and structures. It also includes your organization’s relationships with your employees. Start by including your various stakeholders in preparing and reviewing your practices and procedures. Give your employees a chance to decline your policies, or at least comment on them. Enable the Survey tool, allow employees to respond anonymously, and share the results, whether their ratings are good OR bad.

The key takeaway is that two-way communication with your employees is paramount in complying with ESG. Open as many avenues for your employees to hold you to a higher standard. Which brings us to enabling the Suggestions component! You will be both dismayed and delighted with what comes of it. Sprinkled in with suggestions for a 4-hour workday and a soft-serve ice cream machine in the break room, you’ll also get some great ideas that move you a step closer to a world-class organization.

Environmental, Social and Corporate Governance is an organization-wide initiative, and it takes time, so start today!