Get Your Environmental, Social, and Governance (ESG) Questions Answered
For social impact leaders, environmental, social, and governance (ESG) is a hot topic. As our world faces a number of global challenges: greenhouse gas emissions, depleted natural resources, increasing inequality, emerging disasters, and crises (the list goes on), investors, regulators, and consumers demand that companies integrate ESG into their everyday business operations. Unfortunately, setting ESG targets and implementing an accurate reporting framework is easier said than done.
To answer your most burning ESG questions, we gathered leaders from Kearney’s social impact practice during our annual Social Impact Leadership Conference (SILC) in 2022. Kearney is a leading management consulting agency that supports corporations, nonprofits, and public institutions in identifying the strategies, tools, and processes that are essential for achieving their goals. They also work with leaders in the social impact space by helping corporations and investors set ESG goals and take action.
During our time together, the audience members had the opportunity to pose questions to Kearney’s social impact leaders, Phil Caruso, Principal- Leadership, Change, and Organization, Kearney, Beth Bovis, Partner- Global Social Impact Lead, Kearney, and Karina Toy, Americas Net Zero Lead, Kearney. Here’s a snapshot of this conversation!
Question: Defining where your company should invest when it comes to ESG can be difficult, and most can’t do it all! How do you suggest organizations define where and how they will invest? And does it vary by industry?
Bovis: For many industries, their work in the social space aligns with their identity as an organization. At Kearney, when we’re approached by executives with this question, we tell them to think about their social efforts as a 70:20:10 model. This means that 70% of your efforts should be tied to who you are as a company. For example, if you have millions of global employees, consider allocating your funds toward pay equity and other issues related to employee wellbeing. If you’re producing industrial equipment, perhaps focus your efforts on health and safety. Next, 20% of your efforts should focus on local and community-based needs. Examine the communities where your employees live and work, and identify organizations or causes your company can support. The final 10% are efforts that align with where and how your employees want to give. Ask your workforce which causes they’re passionate about and align your CSR efforts with their feedback.
Question: When it comes to ESG, investing internally is just as important as investing externally. How can companies assess how much to invest in nonprofits and how much to invest in their employees’ wages, well-being, DEIB initiatives, etc.? And how can they strike the right balance?
Bovis: This is an extremely complex and difficult question to answer. Let’s say you gave $100 million to charities last year. How do you know if you should have given $70 million to charity and $30 million more to your workers in wages or to increase their health benefits? And to be transparent, I don’t know if this question can be answered quite yet. However, we’re starting to ask these kinds of questions, and others in the industry will follow shortly. Companies are eventually going to have to ask themselves, “Have we made the right tradeoffs in service of social good and social impact? And what really uplifts communities more?” These are complex and nuanced questions that corporate leaders need to begin to consider.
Question: How can companies begin to establish repeatable processes for ESG data handling and reporting that most accurately reflect reality?
Toy: Right now, it's okay to not have the perfect way to accurately report your impact. Since we don’t have a universal formula for measuring ESG outcomes, it's not always about the exact number, but instead, if you can demonstrate progress. ESG very much values transparency! As long as your organization continuously shares as much information as you have available, that is what’s most important. It’s also helpful to set targets as percentages instead of solid numbers. This way, you can still set attainable targets and assess whether you reached them, but you’re not relying on accurate baseline numbers and perfect calculations—both of which you might not have yet!
This can be very uncomfortable, and many CEOs don’t enjoy this approach! But this is the reality of ESG, and you have to be okay with giving it your best shot and being transparent about what you do know and what you don’t know.
Ready for More?
Interested in hearing more from Kearney’s social impact leaders? Check out the session overview here! You can also access the full session, and other great conversations from the Social Impact Leadership Conference at our SILC Content Hub—see you there!