The “S” in ESG & Corporate Sustainability
Updated: Jul 7, 2020
“Investors must learn to distinguish real economic-value creation through social impact from corporate window dressing and the spin of reputation management. This means weeding out companies that operate with only a veneer of social responsibility or merely follow industrywide best practices. Shared-value companies will be doing things differently than their competitors in ways that connect social impact with shareholder value.” - George Serafeim (Impact-Weighted Financial accounts)
Now, more than ever, the above quote from George Serafeim rings true. The current state of the world has exposed brands and corporations that have long neglected their impacts and refused to realize true investments in what is most important to their core business: the health of the society & environment in which they operate.
Our current multi-front crises across climate, society, & health has radically shifted what has been a gradual change towards sustainable business to a full-blown corporate reckoning. As companies are abruptly learning how long-term success is directly tied to their impact on the world, investors are also quickly understanding that a corporations impact across Environmental, Social & Governance (ESG) factors are strongly correlated to financial returns.
Typically, the focus on ESG factors have weighted heavily on the Environmental (E) and Governance (G), but it’s becoming clear that the S (Social), while the arguably the hardest to measure, is equally important. It’s evident that corporations that ignore shifting social paradigms and react rather than innovate, that follow rather lead, will be left behind.
For companies wanting to innovative around social issues, understanding the first step or action can be daunting.
As company, start by asking:
• Which social issues should we focus on, or what issues are most Material to our organization and why?
• How do we begin to act and align on these material issues?
What is Material and why?
Often, deciphering what issues are material is a challenging task to understand and plan around.
As an example, think of a bank investing in solar panels for carbon reduction, while at the same time issuing sub-prime loans. While the bank generates a rosy ESG report around its carbon reduction campaign, its financial products create devastating social and economic impact and in turn wreaks havoc on its bottom line. Unearthing materiality in relation to your company’s core values can bring authenticity to your companies culture and brand, while creating real shared value.
To understand materiality and organizational alignment, begin by asking questions such as:
• What is our purpose, mission & vision?
• What are our core values & competencies?
• What areas of impact are core to our mission & vision?
• Who are our stakeholders, and what are their greatest motivator?
• Where are we in terms of our “CSR maturity?”
• How can we shift from a defensive, reactionary company to a progressive, innovative leader?
• How can our consideration of social issues shift from a risk management lens, to recognizing their importance for creating long-term sustainable competitive advantage?
By asking questions and mapping your organization on a “maturity curve”, your company can establish projections and understandings of where you need to go.
Wanting to shift is one thing, doing it is another. How to begin to act and align on these material issues?
Social impact goals & metrics don’t come easily. Often companies do not have the measurement or reporting mechanisms, or even know where to start. On a tactical, internal focus, companies often struggle to generate or measure these metrics as well as understand how they correlate to other departments.
Companies that are serious about social innovation need to understand how to begin to measure material social metrics and integrate such metrics in a strategic way. Doing so can signal “alpha” opportunities in the marketplace to savvy investors as well as begin a path towards embedding a long-term social impact company culture.
Start off by formulating a holistic way to meet, measure, strategize and consequently report metrics. Focus on “pre-initiative collaboration". Through a simple, focused methodology corporations can begin to build a strategy to manage and measure key metrics that are shared across departments and that are material to the company as a whole.
Once these are established and you have brought departments in to understand internal material metrics as they relate to the initiative and their business unit, they can identify shared metrics and indicators that they can work towards together.
Lastly, don’t be afraid to share the financial benefits of a social impact initiative. Often times companies shy away from broadcasting any financial gains from social innovations feeling it may be in bad taste, but in reality, highlighting profitability from said changes will only increase the business case for socially responsible business and investing.
Wanting to shift your business is easy, knowing where to start is hard. Beginning to ask the right questions and being collaborative can put you on a path towards becoming an innovative social and environmental leader – the type of company that the world needs now more than ever.
For more information, visit: https://www.uhgconsulting.com/
Henry Vogt is a Senior Consultant with UHG specializing in Emerging Markets & Technologies, Renewable Energy Project Management, and Corporate Strategies. Henry is passionate about developing innovative and sustainable solutions for clients, bringing over 10 years of professional experience across tech, travel, energy, and sustainability consulting industries.