Pay equity, diversity and inclusion
How to Prepare for the ESG Reckoning: Three Essential Steps
When two founding members of Bain Capital’s impact investing fund sound the alarm that An ESG Reckoning Is Coming, employers should take note.
Michael O’Leary and Warren Valdmanis cover a lot of ground in their new article for the Harvard Business review, from Nikola’s disastrously fake zero-emission semi-truck commercial to Former U.S. Attorney General Loretta Lynch’s admonition that, this year, “you are going to see scrutiny that goes beyond regulatory scrutiny to environmental justice, to racial inequality and ESG more broadly. Certain industries that may have been seen as contributors to systemic inequality may want to look at their role in undoing that inequality.” Yet, in between highlighting important developments in environmental, social, and governance (ESG), such as 2020’s record capital flows to ESG funds, O’Leary and Valdmanis offer three prescriptions for more sustainable and conscious corporate commitments, applicable to any organization of any size.
Step 1: Submit Public-Facing Data on ESG Impact
First, the authors argue that companies should be compelled to submit public-facing data on their ESG impact with “ standardized, easy-to-understand metrics.”
These types of “sunshine” requirements bring to light otherwise shrouded or opaque corporate practices. As Trusaic has discussed elsewhere, companies are increasingly called upon to report their race/ethnicity pay gap data, and such reporting can actually lead to better business. In this vein, ESG reporting seems a natural outgrowth of the pay data reporting currently required in locales as varied as the U.K. under its Equality Act Amendments and California via SB 973.
Step 2: Expect to Be Held Accountable With Regard to ESG
The authors’ second recommendation flows from the first: the general public should hold corporations accountable with respect to their ESG commitments. Consumers, employees, and investors can exert considerable leverage over organizations to follow through on their promises.
O’Leary and Valdamis use the example of Burger King’s Impossible Whopper, which has the potential to drastically shift meat processing and transportation practices that cause significant environmental damage. McDonald’s is apparently following up with its own version, the “McPlant Burger”. Public reporting of ESG data will undoubtedly make the accountability process more efficacious.
Step 3: Incorporate ESG Efforts Into Your Normal Business Routine
Finally, the O’Leary and Valdmanis advise organizations to make ESG part of their corporate DNA. What does this mean, specifically? Companies that are serious about ESG should “consider putting their purpose into their charter and becoming benefit corporations.” They cite Certified B Corps such as Patagonia and Seventh Generation as “balancing profit with a stated public benefit.”
The authors’ three ESG prescriptions aren’t simply “nice to haves.” Actually, the authors assert, the risk of ignoring ESG or sidelining ESG issues is existential. “Companies that don’t adapt,” they state, “will find themselves at odds with their customers, employees, investors, and regulators.” Thankfully, on account of O’Leary and Valdmanis, we all have a roadmap to follow to begin preparing for the impact of the ESG reckoning.
Employers should include these three steps when setting ESG goals and measuring their progress towards said goals. The gap between ESG efforts and expectations is growing and employers need to start making good on their initiatives in order to keep up with the demand.
ESG reporting is on the rise. Organizations must ensure they're adhering to the requirements. Our Practical Guide to CSR and ESG Reporting provides everything your organization needs to know to demonstrate your commitment to social responsibility.