ESG is about to revolutionize business as we know it.
The Environmental Social Governance (ESG) Framework is a new way to evaluate and define success in organizations. Traditionally, an organization’s success has been singularly defined by profit and measured solely by the value generated for shareholders. But this narrow focus is expanding as ESG transforms what it means to create value and radically alters our definition of success by incorporating impact, ethics, and purpose.
Not just a feel-good exercise
ESG has been driven by the investment community, beginning as early as the 1960s when some investors began to exclude certain companies or industries from their portfolios based on ethical considerations. Today, more and more investors are using ESG tools and measures to support investment decisions. These are not just feel-good choices, but smart and strategic investments. There is growing evidence that incorporating ESG elements makes companies more resilient, lowers reputational risks, and leads to more success.
ESG is going mainstream
ESG is beginning to be part of the mainstream corporate narrative. A great proof point is the Statement of the Purpose of a Corporation made by a group of nearly 200 CEOs from America’s largest companies who are part of the Business Roundtable. In 2019, they declared that companies should deliver long-term value to all their stakeholders – customers, employees, suppliers, shareholders, the environment, and the communities in which they operate.
ESG matters to employees
In 2021, Edelman released a special report on the belief-driven employee. The report concluded that employees now expect more from employers, especially on commitments to address critical and current social issues. In fact, Edelman found that 61% of people would choose, leave, avoid, or consider employers based on their values and beliefs. Many researchers are finding that the great resignation is being driven by people who have realized that their values and beliefs are at odds with those of their employer. Not only will this trend continue to accelerate, but ESG will increasingly shape an organization’s reputation as an employer and be a compelling component of the employee value proposition.
ESG is about employees
ESG isn’t just about climate change, reducing waste or supporting good causes in the community – it is about employees too. The S in ESG stands for social and included in this group are employees.
The traditional emphasis on profit is usually at the expense of people. In the name of productivity and results, people are often stretched to the limit. This focus on efficiency is dehumanizing — workplaces can be brutal and toxic and people quickly become disillusioned and disengaged. ESG frameworks hold the promise of improving employee wellbeing, diversity and inclusion, and other dimensions of the employee experience as a measure of success.
ESG starts on the inside
ESG has the potential to completely change the world as we know it, but first, organizations will need to change. Applying an ESG framework means asking:
- How, as an organization, do we make the world a better place?
- How do we understand where to start?
- How do we integrate ESG into our business strategy?
- What are our goals and how will we measure success?
An organization’s ESG journey begins on the inside by raising issues, asking questions, and evaluating relationships with communities, employees, and the planet. It also means rethinking and reimagining purpose, evaluating new and current risks, and redefining what it means to be a trailblazer. It’s a journey that requires change at every level of the organization and a paradigm shift in values, mindsets, and behaviours. In other words, a CULTURE change. Without significant efforts toward changing an organization’s culture, the potential for ESG to transform our world won’t be realized.
Next month, we’ll tackle the tough topic of culture change with stories and best practices from our experience leading transformation initiatives. We think these lessons provide the best place to start if you want to embed ESG thinking into your corporate DNA.
And if you need help with ESG communications inside your organization, drop us a line. We’ve started working in this exciting area of culture change with several clients and would be happy to talk.
