When it comes to the issues that businesses have been most focused on in recent years, being sustainable has been second only to matters regarding COVID-19. In measuring a company's sustainability, ESG factors (environmental, social, governance) must be considered. For example:
- Environmental factors cover climate change, but also pollution and conservation measures aimed at reducing energy usage and waste.
- Social factors include human rights performance, how health and safety complaints are handled, as well as larger efforts to combat issues such as racial or gender discrimination.
- Governance factors cover risk management and regulatory compliance, as well as the alignment that must be created between different stakeholders in an organization, including investors, governing boards, employees, and customers.
Having a good ESG rating is important, as it is often used by investors to determine whether a company they're considering investing in reflects similar sustainability goals to their own, helping your board to assess the overall health and operational performance. Companies with a high ESG rating tend to garner increases in productivity and profitability as a result of more efficient operations.
A recent ESG strategy survey from GlobalData—a data analytics and consulting firm—sheds light on the extent to which companies are setting up and implementing their ESG plans. The survey was conducted among 1,500 influential ESG leaders and executives from around the world, including senior directors, vice presidents, AVPs, heads, and managers from more than 20 industries. Here is a look at what the responses reveal.
COVID-19 accelerated climate action and ESG strategy development
When asked if COVID-19 kick-started focus and action on ESG issues, 67% of respondents answered "yes," and another 20% answered "maybe." Only 11% of the respondents stated that the pandemic did not create the need to take action to reach their sustainability goals. However, nearly all of the survey participants agreed that companies should set targets in order to reach their ESG goals. In fact, 69% of the respondents stated that they were planning to address ESG factors within the next five years, showing the current urgency of establishing ESG measures.
As explained by the International Monetary Fund, COVID-19 helped many individuals and businesses understand the importance of taking proactive measures to develop global solutions to prevent widespread economic disaster when unexpected events occur. Case in point: 43% of individuals and companies report being more worried about climate change than they were before the pandemic, leading to increased calls on governing bodies to enact reforms and increased demands on corporations to develop ESG strategies as a way to be a part of the solution.
The hidden purpose of the pandemic to increase focus and action on ESG issues was particularly noted by executives, with 69% of those surveyed believing the pandemic would continue to have a heavy impact on businesses over the next 12 years. However, when asked of the impact of the pandemic on the ability to meet ESG goals, more than half of the companies stated that the impact would be low.
Environmental factors are a top priority for corporate ESG strategies
The purpose of developing an ESG strategy is to create a path to business growth that provides equal consideration for the health of the planet, the employees, and the community, while allowing the organization to actively reflect the diverse visions of its board and investors.
When asked to rank the importance of the three sustainability factors, respondents were nearly unanimous on the notion that the environmental factor was the most critical part, followed by social and then governance. The three main benefits of maintaining an excellent environmental record included customer satisfaction, a cleaner environment, and improved reputation rather than common business measures of success, such as employee morale, shareholder satisfaction, and revenue growth.
One of the areas of emphasis for companies in terms of social sustainability is health and safety, for the obvious reason that this area of operation tends to be highly regulated. The consequences for failing in health and safety measures are high, including worker fatalities and devastating impacts for the communities in which the companies operate.
Governance—the "G" in ESG—needs work
Of all aspects of ESG, survey responses revealed that it is the governance factors that are in the most need of improvement. Significant majorities of respondents noted that governance was not only less important than the other sustainability factors, as well as less of a focus for investment, in spite of the fact that most of the respondents reported that their companies conducted risk assessments and that executive pay was linked to governance targets.
Which industries lead the ESG strategy ranking?
When measuring ESG importance to the company's leaders, goal setting, and investment, the sectors who ranked the highest included:
- Oil and gas
It should be noted that survey participants within these sectors are more impacted by regulatory actions that are put in place to slow down climate change. Additionally, organizations within these sectors were most likely to face pressure from customers and investors, who demand ESG strategies for companies that can balance out the large footprint of high-resource users.
The key takeaway
Even as the effects of COVID-19 will continue to dominate the overall planning of organizations worldwide in the short-term, companies are looking beyond the pandemic to determine ways to meet the ethical, social, and environmental expectations of their investors in the long-term. LRN aims to equip organizations with the values, knowledge, and tools they need to minimize risk, maximize outcomes, and measure effectiveness. We can help you navigate the world of corporate ESG strategy and home in on the aspects that are materially important to advancing your agenda for people, planet, and profit. There is no one-size-fits-all solution when it comes to ESG goals, as each business brings its own context to the equation.
Take advantage of LRN's sampling of library courses for employee training across a range of ESG-related topics and let us create custom content that specifically targets your education needs. Take a look at LRN's ESG training course for an overview of the environmental, social, and governance training we offer that shares your corporate ESG strategy.