You might be surprised that the S in ESG does not stand for ‘Simple’. You may also be surprised that the S in ESG does not stand for ‘Sustainability’ either as is sometimes assumed and lumped in with the Environmental E of this three letter acronym.
So what does the S in ESG stand for?
ESG, or Environmental, Social and Governance to give its full title, is an approach to evaluating and operating businesses that goes beyond the sole focus of shareholder return. Instead, ESG takes into consideration the ecosystem, both internal and external, that businesses operate in and how they affect each other.[i]
Last week I was lucky to be in the US for Fall Market Week. We met with our clients, prospects and partners with the goal of promoting how our Certification standards ensure that the promises made by manufacturers (or indeed retailers) are kept when the product is purchased and used by the consumer.
This is especially relevant for allergy and/or asthma based claims around these products being a healthier choice, to ensure Allergy Standards Limited (ASL) keeps our customer promise to make the indoor environment a healthier space.
However, in the city that never sleeps, there are always other events taking place which are of great interest to me and other members of the ASL team.
Climate Week NYC 2022 (organised by Climate Group) took place from September 19-25 at the Javits Centre and other locations around New York City.
I found two events that tweaked my interest:
- Healthy Democracy, Healthy Planet How Environmental Groups Can Address the Unjust Impacts of the Inflation Reduction Act and the Politics that Produced Them
- The ‘E’ in ESG doesn’t mean ‘Easy’ The difficult role of business as an influencer of change through ESG
The second session influencing the title of this article ;-)
The first event was organised by the Green Leadership Trust (GLT). Emira Woods (their Executive Director) was so welcoming to this Irish blow-in who wanted to know more about what they did and how they did it.
The emotion of the speakers at this event was something to behold. The key message from the podium was that the first US climate bill in 50 years, the Inflation Reduction Act (IRA), has not delivered to underserved communities on the requirement to bring social justice and equity to disenfranchised parts of the USA (and abroad).
In fact those most excited by the IRA are people who it impacts on the least. The GLT representatives’ assertion is that strong climate change legislation comes from how we treat each other first. Saving a world that is prejudice to people of colour, or the socially deprived, is not a world that they particularly want to save. Strong words indeed from passionate community leaders.
The second session I attended was from the other side of the equation: those in corporations who are seeking to start on the ESG journey or monitor the impact of what they have achieved to date and how to improve.
This event hosted by Datamaran (the world’s only data-driven platform to identify and monitor material #ESG risks and opportunities), located in the hallowed walls of Fordham Gabelli School of Business, was an opportunity for American Electric Power (AEP) and Fortive to demonstrate their ESG chops in the safe environment of a very agreeable audience.
As per the title, the focus was very much on the “The ‘E’ in ESG…” and the 2 companies have strategically managed the journey through ESG very effectively with their software provider (Datamaran) acting as a trusted advisor throughout the journey.
The key messages from this session were that:
- Companies that are starting their ESG journey are starting from the top down: the C-Suite are now tasking their teams to look at the risks within their organisations.
- There is a backlash against ESG – and this is good – as it will make ESG better and remove the “green washing” narrative that currently halts adoption.
- Datamaran are helping clients set their ESG agenda, using patented technology, to identify and monitor over 400 external risk factors – including environmental, social and corporate governance (ESG), innovation and technology, and geopolitical issues – on an ongoing basis by scanning the regulatory, media and corporate disclosure environments.
So how does all this impact on a company’s desire to implement their ESG strategy? It is our belief that they must address the S in the middle. It is only by addressing social injustice at community level, that they can build trust in their organisations.
Many retailers and manufacturers have great programs in place to give back to their local communities where their have stores or manufacturing facilities.
However sometimes this is seen as “programs” to gloss over the “bad practices” that they do by making donations to demonstrate their Corporate Social Responsibility (CSR) credentials.
Brands are becoming increasingly irrelevant, delivering poor content and failing to improve consumers’ lives, according to shoppers across the US and beyond.
In fact according to the Havas Group’s Meaningful Brands Report 2021[ii]:
- Survey of 395,000 consumers around the world finds cynicism at an all-time high; less than half of brands are seen as trustworthy (47%) and 75% could disappear and would be easily replaced
- 71% have little faith that brands will deliver on their promises
- Despite this cynicism, consumers are desperately seeking brands that will make a meaningful difference – with 73% saying brands must act now for the good of society and the planet
- Report warns of ‘CSR washing’ if the expectation gap is not bridged
It is our belief that there is an opportunity to produce and retail products that can actually make a real difference to the health of people in communities, at an affordable price point, and with support from local groups. Our partner, the Asthma and Allergy Foundation of America, who advocate for and educate families to make better/informed choices about the products they bring into their homes, is a fine example of this approach.
The environment is super important – we will not get a second chance with this rock we live on floating through space.
However demonstrating climate and sustainability credentials as a “badge of honour” when they should at this stage be seen as “table stakes”, is something companies need to get on with and not wait for the herd.
Corporate Governance, although not a given either, is something that is in the gift and control of most large organisations. How corporations treat their employees is critical for an energised team that want to work with a purpose driven organisation.
So the S in ESG is not simple. But that does not mean we should not strive to achieve the social justice so passionately orated by the Green Leadership Trust by ensuring that corporations engage at all levels in communities and ensure that no-one is left behind in the desired journey that is ESG.
[i] What is ESG and Why Does it Matter to your Business?
[ii] Havas’ Meaningful Brands Report 2021
Dave Morrissey – Chief Innovation Officer at Allergy Standards