Corporations have become a new source of social cohesion and momentum, proving more responsive and responsible than some political elements and therefore the government itself, at least in the United States. Various efforts to move corporations onto more socially responsible footing have occurred in the past, first via non-profits, then more recently with B-corps, and now with ESG scoring.
ESG stands for Environmental, Social and Governance, and represents a more stakeholder-driven approach to doing business. It also represents a major shift in priorities — one that is occurring as swiftly as it is overdue. With global warming, racial and gender inequities, and income inequality all as obvious as the nose on our collective face, it’s about time. And expectations of change and leadership are hitting businesses, through employee expectations and desires.
This tide has been swelling for some years, with activism at large tech companies, around advertisers when media outlets go rogue, and even in our space via the recent strike threat at Duke University Press.
ESG scores are nascent, so there is little uniformity to them so far, but they are being offered by some major entities, with Bloomberg ESG Data Services offering ESC data for more than 11,700 companies in 102 countries, Corporate Knights Global 100 publishing an annual global ranking of corporate sustainability performance, and investment options like the Dow Jones Sustainability Index Family having been created for investors “who wish to limit their exposure to controversial activities.”
What goes into an ESG score? Things like:
- Progress reversing climate change
- Utilization of renewable energy
- Sound environmental policies
- Ethical treatment of workers at home and abroad
- Employees earning a living wage
- Facilities that are regularly inspected and safe to work in
- Employees can take leave when they are sick or for other personal reasons
- The company abides by all local, state and federal laws
- Board composition represents diverse backgrounds and perspectives
- Executive and non-executive compensation compare favorably to peers
Apparently, investors are paying attention, and start-ups with strong ESG scores are more likely to get funding, and more funding, than peers without strong scores or any scores at all.
If ESG scores become more common, it would be interesting to see how various scandals, acquisitions, or divestitures might change scores. It would also be interesting to know your vendors’ scores — or, if you’re a vendor, the detailed scores of your potential new client.
Patience with shielded accountability and inequitable bargains of various kinds has evaporated. ESG scores may provide a way to check how your company and others are doing, and for governance bodies and executives to get ahead of the change. Companies with large technology footprints may have to start thinking about carbon offsets, and firms outsourcing labor may have to view their contracts through a lens of fair wages, pay discrepancies, and environmental effects.
Accountability is emerging in more places and more persistently, and ESG scores may be a new demand on companies to prove they’re functioning in a manner that’s acceptable to rapidly evolving social mores and moral standards.
I’ve only begun hearing about these recently to be honest. Are you already using ESG scores? Are you considering it? Please comment below (comments are open to all for this post).