The evolution of environmental, social, and governance (ESG) is reaching a heightened level of prioritization as more companies are including these topics in their strategic conversations. In today’s era of disruption, businesses are determining whether pivots are needed to embrace greater transparency and bring further alignment to strategic goals.
Through the lenses of finance, marketing, HR, operations, client, and investor relations, business discussions are transitioning from “Should we prioritize ESG this year?” to “How can we incorporate ESG as an opportunity for growth?” Ann Dennison, Executive Vice President and Chief Financial Officer, Nasdaq, commented on this evolution of stakeholder capitalism:
“Gone are the days of the investor being the only stakeholder. An organization’s stakeholder base now includes customers, employees, and communities.”
The trickle-down approach emphasizes the importance of ESG starting at the board level. With overarching objectives and C-level alignment, strategic growth can then be funneled to departmental leaders and their teams. This approach will develop long-term opportunities and consensus with ESG as the company’s DNA backbone. Sean Hinton, Founder & CEO, SkyHive Technologies Inc., commented on ESG as a part of their company’s strategic growth plan.
“The quest for a startup to integrate ESG into its DNA is a marathon, not a sprint. At SkyHive our journey to becoming a leader in impact has taken four years; starting with adopting the standards of a B Corporation and now leading the global dialogue on Ethical AI.”
This journey mentality is being embraced by companies across the board.
With ESG at the heart of stakeholder conversations, the growth mindset is being mirrored by larger entities including publicly-traded companies found in the S&P 500® index. In Governance & Accountability Institute’s (G&A) 2020 annual S&P 500 sustainability reporting analysis, 90% of the S&P 500 published corporate sustainability reports.
Although reporting was found to be at an all-time high in 2020, the U.S. Securities and Exchange Commission (SEC) is projected to increase enforcement related to ESG investing in 2022. Spearheaded by Kelly Gibson, the Director of the SEC’s Philadelphia Regional Office, the ESG Task Force is expected to detect and enforce greenwashing.
Their focus is described as “making sure that investors are given the most accurate information possible in a timely manner, and that advisors are doing what they say they’ll do.” The reshaping of ESG initiatives within reporting is one incremental step to progress. However, the actionable initiatives that stem from these reports reinvigorate the emphasis on business opportunities and subsequent growth.
Stakeholder alignment at the board level requires a keen understanding of which ESG issues are prioritized by a company.
To assist with this identification of ESG issues and priorities, a materiality assessment is often the recommended path. This process identifies, refines, and assesses the numerous potential environmental, social, and governance issues that could affect a business and/or its stakeholders.
Once identified, material issues are condensed into a short-list of topics that inform company strategy, targets, and disclosures/reporting. The assessment also helps develop a materiality map or matrix on what is the most important to stakeholders and consumers along with the impact on business success.
Opportunities for growth can then be identified, assessed, and materialized through strategic goal-setting, departmental accountability, and unified messaging. Corporate pillars of trust, transparency, and value can be established and communicated to stage companies for ESG growth.
Strategic business growth with long-term success requires a reshaping of ESG.
Rather than being viewed as a checklist item, companies small and large need to embrace ESG as an organizational opportunity for growth. Similarly, internal and external stakeholders hold the potential to benefit from these ESG practices.
With executive buy-in, a growth mindset will enable companies to not only rise in the (ESG) ranks but also provide exemplary growth to all stakeholders – structurally, culturally, and financially as a unified entity.
