12 Jan Why You Need To Care About ESG
As we enter a new year, we’re met with the mystery of what it might hold. As the last two years have shown us, we’ve needed to be agile and quickly adapt time and time again. As leaders, it’s our job to think about, anticipate, and plan for multiple possibilities. In recent years there has been an increased focus on organizational culture, social justice, the environment and how all these strategic issues are being governed. As a result, one of the bigger trends we expect to see this year is continued investment in environmental, social, and governance (ESG) funds.
Prioritizing ESG is not only beneficial to the world, but also to your company. One meta-analysis found that 88% of studies show evidence of better operational performance in companies that adhered to social/environmental standards, and 80% of studies found a positive correlation with stock price performance.
ESG funds had a record-breaking influx in 2020 – we’re talking over $21 billion in the first quarter alone, for a year-end total of $17.1 trillion.
In recent years, nation-wide emphasis on ESG has been growing exponentially. ESG funds had a record-breaking influx in 2020 – we’re talking over $21 billion in the first quarter alone, for a year-end total of $17.1 trillion. This amounts to a 42% increase since 2018, and with no signs of slowing down, it’s a clear indication that 2021 will maintain momentum… but why?
The answer is simple. More and more people are demanding that companies be held accountable for their actions – and not just consumers. Investors and employees too. Not only for the sake of environmental, social, and governance related concerns, but also for the sheer fact that businesses that prioritize ESG actually tend towards higher performance.
Scaling sustainable solutions is starting to look like the only way for companies to survive the coming years.
Sustainability is the hottest topic around right now, as it should be. It’s finally getting its moment in the spotlight, and the forecast for a continuation of this status is a promising sign for the future of, well, everything, but also work. With plastic-free household cleaners becoming a competitive market, people-first coffee companies popping up left and right, and industry leaders making actual strides in the name of DE&I, sustainability is clearly at center stage. Scaling sustainable solutions is starting to look like the only way for companies to survive the coming years.
Let’s break it down by category, so that we can see what it actually takes for your company to prioritize ESG.
This category pertains to the resources your company uses and the waste it produces. While for some companies, such as those that manufacture products, this may present as a more obvious impact, no organization is exempt from this criteria. Every business, big or small, physical or digital, has some sort of impact on the environment. In order to reduce that impact, you must first become aware of it in its entirety. Take the time to understand your organization’s footprint, and brainstorm ways to reduce or offset it. Are you leaving the world a better place than when you started? When you can boast environmental consciousness, odds are you can boost higher valuation too.
Social criteria relates to how your company treats people, both internally and externally. Consider the people in the office every day, the people in the field who are one-step removed, the people in the communities where you conduct business, and everyone in between. Internally, a lot of this boils down to company culture. 3 in 5 Americans say they’d take a 50% pay cut for a job they love… so ask yourself if your company is a loveable environment for those within it. Externally, it’s about reputation. How do people talk about your company behind your back? Would everyone be excited if you were to expand into a new territory, or would some individuals/groups be left to pay the price?
This is all about how you run your company, including who helps run it. One component of governance is DE&I related. Take a look at the demographics of your organization, and particularly the leadership roles. Is your board of directors diverse? Do you have minority groups represented in your C-suite? The decision-makers you have in place are the leaders of the future, and when diverse voices are amplified, we’re more likely to build a world that suits everyone, not just those in majority. Plus, diversity means fresh perspectives that increase the likelihood of innovation and increase your bottom line.
Big corporate institutions often get a bad wrap, because many of them are stuck in the past. But as we’re seeing increasing efforts from within these companies to meet modern sustainability standards, it’s becoming quite clear that they can help solve global issues that we as individuals simply cannot tackle.
That said, whether big or small, we can all make a difference. An environmental difference, a humanitarian difference, and a systemic difference. ESG is more than a trend, it’s here to stay, so you can either get on board or get out of the way.
Shaara Roman is founder and CEO of The Silverene Group, a culture consultancy that helps companies align their people programs with business goals.