The ESG Conundrum
The rise of ESG management principles in corporate culture has been a slow steady climb over decades. ESG’s fall from favor as buzzy business speak has been nothing short of meteoric. A large and encompassing concept, it became an easy target for the all-consuming culture wars. Framed as a trendy diversion from profitability on the right and an unverifiable pastiche of corporate social responsibility lending to greenwashing on the left, the short shelf-life of ESGs acronymic brand value was predictable.
However, when you peer behind the letters, engaging with an environmental, social, and governance framework is ultimately about tracking and managing your operational costs, defining your corporate culture, and creating a management structure that mitigates risk and fosters innovation; in short, ESG is about taking a responsible approach to operations and investment. These concepts are not going out of fashion among the global investment community, business regulators, or increasingly choosy and values-driven workers and consumers. Indeed, each of these stakeholder groups are placing ever higher priority on the particular aspects of responsible business practices, and they want to see the receipts.
Which puts companies and portfolio managers in a double conundrum. How do they track, manage, and detail the impact and value of their responsible (ESG) investments? And how do they talk about their sustainability credentials and accomplishments without talking about “ESG” the brand boogeyman? In both cases the devil and the payoff are in the details. Let’s consider the E, S and G individually as each present its own challenges and value.
Unpacking E, S and G
E: Environmental
Environmental impact tracking poses a daunting data gathering challenge, requiring robust infrastructure and methodologies. Establishing systems to monitor emissions, resource consumption, and waste generation is crucial. Companies must invest in technology and expertise to build this infrastructure, enabling them to quantify their environmental footprint accurately and identify areas for improvement. A costly and cumbersome process at the outset, but potentially saving millions in operations while bolstering public credibility.
S: Social
Social is the most fuzzy and contentious element of ESG. At its core, social policies are about what kind of culture a company wants to create, the people it wants to attract, and the values it wants to project as a member of a broader society. Whatever the corporate culture, authenticity and consistency is paramount. Effective internal communication channels and holistic employee engagement initiatives foster a cohesive corporate culture and help enhance the company’s reputation and build stakeholder trust.
G: Governance
Governance is often overshadowed relative to its acronymic cohorts. But governance, meaning leadership structure and representation, transparency, and accountability, is where the biggest and most consequential business risks are managed. Failure to do so can result in catastrophic losses and irreversible reputational damage. Implementing strong and transparent governance practices can go a long way to building stakeholder confidence and attracting top talent, mission aligned investors, and lucrative partnerships.
Details Make All the Difference
ESG, sustainability, resilience, these are just the latest expressions of long-established evidence-based management principles in pursuit of what business strategist John Elkington termed “the triple bottom line” 30 years ago in 1994. Whatever the term, at their most fundamental, these responsible investment frameworks acknowledge that successful ventures must recognize the inherent value of operating and investing in ways that benefit people and the planet while still generating profit. As markets have borne out the validity and security of these practices, what were once innovative trends are now so in demand and increasingly expected that they are moving into regulatory requirement.
In readying for the inevitable future of climate and social impact reporting and storytelling, companies need to invest tracking ESG initiatives, progress, and accomplishments. By tracking their responsible investments, and meticulously managing data, companies and investors gain valuable insights into operational costs, corporate culture, and management’s ability to mitigate risks and spur innovation. Armed with these details, companies can more readily navigate a politically fraught landscape while staying authentic to their values, transparently communicating their sustainability efforts, and actively engaging with stakeholders. By focusing on the real substance of their ESG initiatives, companies can bolster credibility and resilience in the face of scrutiny.
A Partner in Your ESG Journey
Essense has seen these benefits firsthand. We work with clients to aggregate performance data and uncover the stories that can get lost in the numbers to craft compelling sustainability reports. We have also developed digital tools, apps, and communications platforms that enable companies to implement social and governance policies and achieve ESG goals. Finally, we work with our clients to authentically integrate their sustainable, resilient, and responsible business practices into their brand identity and marketing strategy. Our sister company, BuildRI, provides a platform service that rolls up these practices to provide a portfolio level view of responsible investing metrics for private equity companies.
If your company is looking for a partner to help navigate your ESG journey and make your responsible investments work for you, contact our team today.
