I’ve had many conversations with service companies and suppliers of all sizes in recent months. Some might say I’m fairly opinionated on the future of business as it relates to safety, they would be correct. As ESG inevitably comes up during these conversations I am frequently asked: “What is ESG?” I’ve attempted to explain it with varying degrees of success, and therefore felt this week’s article would provide me a better opportunity to do it justice. This week, I will attempt to explain what ESG is and how it affects business leaders and leadership practices.
Before I go further, I want to say that I’m NOT an ESG expert. Also, I’m a firm believer in ‘self correcting’ business practices. Good ideas and ethics statistically win and bad decisions and unethical behaviors lose. If you haven’t caught this yet, I’m not a fan of regulation in most forms. While it serves to curb some negative actions, it typically creates more opportunity for the most sinister among us to thrive through loopholes and technicalities. It also creates a costly reality where a few people have control over the many, and ‘experts’ are needed to navigate how to position yourself to be successful and keep the few satisfied.
Environmental, Sustainability and Corporate Governance (ESG) is a corporate accountability metric as its name suggests. It is a tool used to benchmark corporations (primarily publicly traded) for investment purposes. If you had millions or billions of dollars to invest, you wouldn’t want to place it in the hands of a company that utilizes forced labor or is constantly scandalized by fraud. You would want to ensure it is safe and in ‘good’ hands. The ESG metric provides a way for companies to showcase their ethical, sustainable, and environmental efforts and challenge them to constantly do more for people, the environment, and the planet as a whole.
ESG requirements are not regulatory, they are market driven metrics. The S&P has a composite ESG 1500 index for example, where you can invest in and track ESG transparent companies. There are checklists, experts, and firms dedicated to helping companies with their ESG ‘posture’ (an actual ad on google). The benchmarks, as I call them, are evolving but a few consistent things they look at are what companies are doing to lower emissions/help the environment, help people (in a variety of ways), who they’re hiring, and who is running their companies. Basically, are they good corporate citizens.
ESG will have an impact on even the smallest of private corporations as well. If the ultimate purchaser / seller of goods and services commit to an ESG model - the influence extends to their entire supply chain. Simply put, everyone will need to have an ESG program ethic in order to do business with larger, publicly traded firms.
Yes, we could complain about the many challenges and biases this could / does create. Kiplinger’s Personal Finance magazine had a recent issue dedicated to ESG that plainly states, “An explosion of ESG ratings, rankings and reports adds more complexity than clarity, given that criteria are continually evolving…” Nellie S. Huang and Adam Shell. “Introducing the Kipling ESG 20.” Kiplinger’s Personal Finance. November 2021. Page 20. In this issue I’m not going to attempt any sort of guidance, but next week I hope to consult with some experts and have some basic, authentic strategies to report.
So why is a safety guy writing about ESG in the first place? Simply put, even if you’re a person that just wants to turn a wrench or the power on, you will be impacted by this trend. In some ways, I like the concept that companies who invest in their people, communities, events, and limit waste are recognized for their efforts. In others, I’m concerned that it puts us in a position where we ‘comply or die’ with an international trend. I grew up with mentors and elders who did great things for people as a mode of living, but would balk at the idea of making it public. We all know the adage “Don’t let your left hand know what your right hand is doing. ” Well, they lived by that.
Safety professionals also have a role to play in this future, and as our responsibilities evolve, hopefully we can add value to our companies by helping navigate this inevitable future. ISNetworld® and other compliance databases have already begun requesting data from smaller companies that support ESG compliance initiatives. I’m a huge fan of being ahead of the curve. Building a model that is based in fact rather than compliance will create a better reality for your business.