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As Corporate Social Responsibility (CSR) morphs into Environmental, Social and Governance (ESG) for many companies, there is growing evidence that ESG policies and practices have a positive impact on a company’s financial performance and long-term business strategy as well as the attraction and retention of diverse talent.
While various aspects of ESG may be material to an individual business’s long-term success, the process of identifying these areas (commonly referred to as a materiality assessment) and the tracking and reporting on these issues (commonly referred to as an annual ESG or CSR report), differs widely from company to company, and is only now beginning to be standardized across industry groups and markets.
Recently, Marsh & McLennan issued a report entitled ESG as a Workforce Strategy. The report asserts that ESG performance can have a positive impact on workforce sentiment, which can be a major competitive advantage for companies.
According to the report, top employers, as measured by employee satisfaction and attractiveness to talent, have significantly higher ESG scores than their peers – a pattern that is partly due to these companies relatively strong environmental performance, but the trend is also present across social and governance issues.
Likewise, employers that make greater efforts to understand employee sentiment tend to achieve greater employee satisfaction and attractiveness to young talent, and these same leading companies tend to have more diverse leadership.
All of this points to the increasing importance of ESG issues in attracting and retaining diverse talent as Millennials and Generation Z make up an increasing percentage of the workforce.
Mirroring the importance of ESG to talent attraction and retention, a recent report by the NYU Stern Center for Sustainable Business and Chief Executives for Corporate Purpose (CECP) cites the growing importance of ESG issues to investors and other stakeholders and encourages companies to incorporate ESG reporting into their regular communications with stakeholders.
ESG and the Earnings Call: Communicating Sustainable Value Creation Quarter by Quarter sets out a framework for the periodic reporting of ESG strategy and performance rather than waiting to include this information in annual reports and stakeholder surveys. The report suggests several ways for companies to achieve greater transparency around their ESG performance, which should help drive more stakeholder awareness and engagement on these issues.
Complicating the ESG landscape is the tendency of many third-party commentators to combine Environmental, Social and Governance analysis into one rating or score when these are significantly different factors for many stakeholders. More research needs to be done on how these various ESG practices impact different stakeholders in different markets.
In the absence of more research and data, companies are left to sort out what they believe the importance of myriad issues in the Environmental, Social and Governance realm really means to how they are viewed by investors and other stakeholders in disparate locations and ever-changing social and political environments.
But, clear trends are emerging – particularly how these issues are viewed by current and prospective employees – and further research will crystallize the importance of ESG practices and policies on the long-term sustainability of companies in these challenging times.
