It seems everyone is getting onto the corporate ESG bandwagon. Company after company are reporting their Environmental, Social and Governance commitments. Bloomberg estimates that by 2025, $53 Trillion of assets will be managed under ESG principles. That is nearly a third of all global corporate assets. The market adoption of ESG is huge.
In addition to traditional financial metrics, ESG determines a company’s impact by taking into account factors such as:
- Environmental: includes clean energy, carbon emissions, pollution, waste and water use, deforestation and biodiversity protection.
- Social: includes human rights, diversity and inclusion; workplace safety and employee welfare; data security; charitable donations.
- Governance: includes business ethics; board diversity; political contributions and lobbying, bribery and corruption.
Making a corporate ESG pledge is a good thing. Delivering on that pledge is even better. Which companies will successfully implement ESG for competitive advantage and which ones won’t?
I firmly believe a few crucial factors will determine a company’s ESG success:
- Verified conservation and climate mitigation results will become increasingly important;
- Environment will be a greater differentiator than social or governance commitments;
- Since carbon emissions are a by-product of burning energy, controlling energy use will be a corporate strategic priority;
- Successful ESG managers will have an energy game plan and follow an energy playbook.
My coaching tip for executive leaders is to understand that managing energy is the heart of ESG impact. Tackling energy and carbon requires the efforts of a cross-functional team. Success cannot be achieved by only one individual in an organization. The CFO, HR, plant or division managers and front-line staff are as important to ESG success as is the sustainability or energy manager. ESG is a team sport, not singles tennis.
Some may view ESG as a passing trend. This is whimsical thinking. ESG is here to stay, thankfully. The corporate world is embracing ESG because customers, shareholders, regulators, investors, rating agencies and financial institutions are all demanding it. ESG improves accountability and risk management. ESG helps mitigate climate threats, furthers the efficient utilization of resources, and makes companies more resilient to emerging social issues.
Organize, train and support your cross-discipline energy teams and get them into the game. The sooner the better. Businesses can only continue to produce, evolve and contribute to society if our planet is healthy and safe.
Executives who hesitate to embrace ESG may think it’s too early to start. Before they know it, it will be too late to act. Companies that are slow taking to the field risk being left on the sidelines.