How to Prepare Your Board for Environmental, Social, and Governance Issues
Environmental, social, and governance (ESG) issues have to do with investing in a business that sustainably and ethically impacts the world. It’s sometimes synonymous with socially responsible investing and impact investing.
Regardless of the terminology, in 2019, companies must operate in a way that benefits the environment and communities. On top of that, these organizations must build and maintain a profitable corporate structure for stakeholders and shareholders.
In generations past, businesses didn’t have to worry as much about ESG practices. Yes, it was great for marketing and brand image—but ESG issues weren’t as influential as they are now.
Nowadays, solid ESG fundamentals are lucrative for many corporations. Conversely, failing to uphold ESG standards prove costly to the long-term health of a business.
Board members looking to improve and add nuance to their ESG practices should read on further, to avoid running into any problems.
Think About the Future
ESG investors are all about the big picture. To them, the here and now doesn’t compare to the happenings of ten years down the road.
Some organizations get lured into short-term thinking and get stuck with shrewd investors who only intend to buy low and sell high.
Sure, investors – of any kind – seem ideal. But those lacking in ESG values aren’t invested in the well-being of these companies. Instead, they only care about the immediate bottom line and won’t give companies the support they need for lasting success.
Whereas, investors with strong ESG-leanings regularly work with a company to aid in its growth.
Understand the Current Business Climate
During the 2017 proxy season, State Street Global Advisors (SSGA) voted against the re-election of 400 corporate directors.
Why would they do something so drastic? Well, the (former) directors failed to appoint women to their all-male boards.
The above story highlights how major institutional investors expect companies to uphold environmental, social, and governance standards. Ensuring that socially-and-diversity-conscious decisions are being made in the board room is a primary component of avoiding ESG-related issues.
Know What the Top Talent Expects
In 2019, if a corporation has a poor reputation in the realm of ESG, they’ll fail to attract top-tier talent.
Millennials already make up around 50% of the US workforce. Furthermore, 69% of millennial employees with diverse senior management teams believe they work in a motivating and stimulating environment.
The millennial generation cares about where they work—as it’s a representation of their own values. Passionate and loyal employees who feel valued tend to promote goodwill while bolstering brands and boosting productivity.
Focus on Customer Expectations
Top-notch ESG standards don’t only attract talent and investors. Customers are highly aware of ethical, social, and environmental standards as well.
For instance, Starbucks couldn’t make waves in China for years, until they offered healthcare to its employees’ parents. After that unprecedented move, sales increased exponentially, and Starbucks has expanded to 2,000 stores throughout the country.
Conclusion: Offsetting ESG Issues is Vital to the Long-Term Health of a Company
Don’t treat ESG issues as a simple tick-box. It needs to be a living, breathing entity that affects each decision made by a board of directors.