Carolyn Berkowitz is President and CEO of the Association of Corporate Citizenship Professionals.
In recent months, efforts to stop the enactment of environmental, social and governance initiatives and reporting by promoting false narratives have reached a fevered pitch. As a rule, executive business decisions should be driven by data and facts. And the data shows that ESG policies and practices are not only good for society but also good for business.
1. ESG practices result in bottom-line advantages.
Key data points supporting this conclusion include:
• Three-fourths of Americans believe companies need to positively impact society, the 2021 Porter Novelli Purpose Premium Index reported.
• Large U.S. corporations that best meet stakeholder needs “had a 4.5% higher profit margin, 2.3% higher return on equity and paid five times more in dividends,” according to research by JUST Capital and CNBC.
• A KPMG survey found that 70% of U.S. CEOs said their ESG programs improved their companies’ financial performance.
2. Purpose helps companies win the ‘talent war.’
Long-term business success depends on attracting and retaining top talent. Even as the talent market fluctuates, there is growing evidence that the best employees join companies that are purpose-driven and remain loyal when their values align with the organization and they are contributing to the corporate purpose. The data cited below shows the correlation between purpose-driven initiatives and employee engagement, satisfaction and motivation.
• About 70% of potential employees are more likely to apply for and accept an offer from a socially responsible organization, according to a 2021 IBM survey.
• More than 40% of employees are “reconsidering their current job because their company is not doing enough to address social justice issues externally,” research by Porter Novelli found.
• A report by Citi (download required) said millennials are willing to forgo around 14.4% of their compensation to work at companies that are socially responsible.
3. ESG can help organizations mitigate risk.
Risk mitigation is a key component of corporate compliance requirements, performance measures and, ultimately, valuation. The impact of climate change is of growing concern for business continuity, and adhering to ESG reporting mandates in the European Union is required to compete globally.
• In 2020, a special report by Edelman said 92% of U.S. investors agree “a company with strong ESG performance deserves a premium valuation to its share price.”
• Volatility is higher for those with a poor ESG score when compared to those with high ESG scores.
• The European Union adopted a corporate sustainability reporting directive in 2022, with full compliance from global companies required by 2024.
4. ESG-focused brands build positive corporate reputations.
Building a positive reputation with key stakeholders is essential for a company’s growth. It enhances trust, customer loyalty and brand preference, which, in turn, leads to increased sales and profitability. A strong reputation also helps companies withstand crises and earn the trust of communities.
• A low ESG score can result in only a 10% willingness to buy, but a high ESG score can result in a 67% willingness to buy, according to a report by RepTrak (registration required), which analyzed data from its corporate reputation database.
• Research commissioned by Dotdash Meredith and Omnicom Media Group analyzed “the future majority,” a group defined in the study as “Black, Latina, AAPI women and LGBTQIA individuals 40 and under.” Nearly 90% of respondents said they will prioritize taking the time to “research brands, including their values and how they support the communities I care about.”
• Nearly 65% of consumers expect companies to talk about their behavior and impact on the world, research by FleishmanHillard found.
Getting Started With ESG
Despite the data-driven business case for ESG and CSR and its increasing importance to stakeholders, corporate executives are not sufficiently resourcing this function. Recent data from the 4th Annual CSR Insights Survey by the Association of Corporate Citizenship Professionals, where I’m CEO, offers insight. The data, from CSR and ESG professionals at nearly 149 leading companies, showed real-world consequences of constricting ESG resources in the current business environment: 86% of respondents said their responsibilities had increased over the past year, which led to longer hours for 61% of those surveyed, burnout for 50% and mental health concerns for 19%.
Amid a turbulent backdrop, businesses must keep sight of the inherent value of ESG and resource it appropriately. To get started:
1. Determine your CSR and ESG strategy.
One key step toward developing an effective strategy is to conduct a materiality assessment, or, for those who have already done so, revisit it with fresh eyes. These assessments identify and prioritize social and environmental issues critical to a company’s success and are aligned with stakeholder input. While traditionally associated with larger corporations, organizations of all sizes should routinely evaluate areas impacting their business significantly. Although not mandatory, a materiality assessment serves as a road map for prioritizing CSR and ESG initiatives.
2. Communicate in the language of your business.
In today’s landscape, it’s important to communicate about these efforts in ways that align with the company’s core language and values. Focus messages on the business’s unique expertise on the issue and the concrete positive impacts of the effort, e.g., how and why a communications company is providing broadband access in underserved communities and the impact of the results on education and economic opportunity.
3. Resource the strategy and programs for results.
Starving CSR and ESG efforts of the resources required to achieve intended outcomes is an invitation for risk. If initiatives aren’t adequately staffed or funded, the outcome leads to the potential for community criticism, employee ill will and political fodder to those who are intent on dismantling ESG. CSR and ESG are inexpensive functions. When resources are cut, impact diminishes because reporting and compliance take priority over strategy and effective execution.
To secure a more prosperous future for both business and society, businesses can use the data available to them and resource the functions within their organizations that are steering the strategies that center around sustainability and corporate responsibility.
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