“Today our world is changing faster than ever before – economic, geo-political, and environmental challenges abound. However, taking shortcuts is not the pathway to achieving sustainable competitive advantage, nor is it an avenue toward satisfying customers. In times such as these, a company must invest in the key ingredients of profitability: its people, communities and the environment.” - Warren Buffett
“People, Communities and the Environment” otherwise known as Environmental, Social and Governance (ESG) is a growing investment methodology for companies who want to be seen as:
- Focused on the long term
- Forward-thinking leaders in their industry
- Corporately Responsible
- Better managed
Not to be confused with CSR, ESG is different.
Overall, CSR is used by companies and ESG is used by asset managers and investors to evaluate those companies’ potential financial performance. Is it safe to say CSR is the action and ESG is merely the evaluation of the data from CSR? Perhaps!
“ESG performance indicators include sustainable, ethical and corporate governance issues such as managing the company’s carbon footprint and making sure there are systems in place to ensure accountability. Corporate social responsibility (CSR) is a form of self-regulation ensuring a company’s actions have a positive impact on the environment, consumers, employees, communities, and the public sphere.” - Peter Chadwick (@IEDP_Knowledge)
What your key stakeholders need to know about ESG.
ESG evaluation is an untapped well of CSR program measurement. Aligning corporate social responsibility initiatives with desired outcomes of ESG data can be the proof of success companies have been in search of for so long. Nearly 40% of shareholder proposals submitted to Russell 3000 companies in 2013 related to ESG issues. This is a whopping 60% increase since 2003.
Investors are paying attention and the future performance of your organization may depend on ESG factors. In fact, more than 90% of the 2000 empirical studies since the 1970s show a correlation between ESG and corporate financial performance.
Aligning CSR with ESG: Where do you start?
Recent research from the Journal of Sustainable Finance & Investment finds the value-drive adjustment approach to be the most successful at linking ESG issues to their impact on business models and competitive positions. However, for companies there’s a learning curve as pertinent research data is inaccessible. Could this be similar to the entrance big data made to HR just a few short years ago?
We’ve barely scratched the surface, and there’s a lot more for CSR folks to learn about ESG, the evaluation of it, what it means to investors, what they look for, and how this data can be incorporated into CSR strategies for long-term.
We know our approach to evaluating the ESG investment is just one way, so we’d love to hear your thoughts on ESG and how it’s impacting your business by tweeting at us @CyberGrants!
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