Why CEOs Should Care About ESG Policies
Can we say that our lives have improved alongside economic growth?
We’ve got a big-picture understanding of why ESG is important, but it’s beneficial to break that down and see how that affects different groups and participants. Companies care about ESG today because they are interested in doing the right thing and striving to contribute positively to the environment, improve social advancement, and conduct themselves responsibly. But it also goes far beyond that: ESG commitments lay the foundation for how other groups work and choose to interact with an organization.
Let’s consider why CEOs should be thinking about a company’s ESG values and strategies.
ESG Helps CEOs Build Business Resilience
A CEO's job is to identify and focus on key strategic priorities to guide their business toward success, but that can be challenging for any CEO when countless issues can distract attention. CEOs are tuned to seek out opportunities, but they also need to anticipate and manage risk—which has become especially evident after dealing with the global COVID-19 pandemic and the financial crises that came along with it. Whether you’re a large organization supplying other companies or running a small independent business, all CEOs need to be considering ESG from different perspectives of their business.
When it comes to your business’ stakeholders, CEOs need to ask: What are their ESG values, and how can your company help them fulfil those values? Your company’s success will depend on your ability to fit into your stakeholders’ strategy. Mutual support is the solution to long-term success.
For your customers, you’ll want to find out what their ESG values are and where your company fits in. They might question what your CO2 emissions are and how you’re going to keep them low or reduce them in the future, or if your business has ethical supply chains.
As an employer, your employees want to feel proud of the company they work for. You’ll need to provide your employees with clarity on commitments they care about, such as your Indigenous employment policies and results, or if your organization has policies and practices that protect employees’ mental health.
Both publicly traded and private companies are looking at ESG criteria much more thoroughly and holistically today, so companies can’t absolve themselves from ESG responsibilities through third-party agreements. As a CEO, you need to satisfy what your partners, employees, and customers need and beyond.
Purpose in the Workplace Drives Employee Performance
How a company treats its employees will either motivate them to work there or steer them away. In today’s competitive recruiting environment many potential employees are asking: What are the diversity, equity, and inclusion (DEI) policies? What are the health and safety policies? Is the company doing its part to ensure fair and equitable pay within our company and industry? Employees are interested in how employers are supporting them and what they are doing to keep them engaged.
By focusing on ESG in the workplace, organizations are doing their part for the planet while improving employee engagement, innovation, productivity, and driving business success. When employees feel valued and are given a clear connection to something important, this keeps the workforce motivated and drives business success.
One rising issue to highlight today is DEI policies. Employees want to see themselves represented in the upper ranks of the corporation, and they want to see traditional industries shifting toward representation that reflects our current society. There is a greater focus on meaningful equity and inclusion for people of colour, gender, disabilities, and orientation, and many employees will question your company’s ESG values and choose whether they align with their own.
Investors Are Motivated by Sustainable Strategies
Investors might have similar views and concerns as customers, where the definition of success is not solely focused on shareholder value but should benefit all stakeholders—including employees, customers, and communities. Investors are motivated by companies who think about profit and ESG rather than choosing between profit or ESG.
Many investors have been demanding ESG information from companies to help guide their long-term investment decisions. Companies that value ESG solutions mitigate risk, which builds resilience since they are aware of what’s happening around them. At the same time, these companies are also taking advantage of the huge opportunities in ESG evolution by understanding change and how it impacts them long-term.
Studies show that companies with a strong ESG performance are more likely to provide better financial returns and reduce risk, especially when markets are volatile. Today, debt ratings often have ESG attached to them, and the most critical shift we’re seeing is that even giant companies and organizations are trying to be better to the environment. Everyone is being forced to open their eyes to significant issues like global climate change since it has immediate and long-term impacts to how we live and do business.
Environmental, social, and governmental concerns are tightly intertwined and have become more urgent than ever, and those connections create ripples affecting everyone in today’s world. More and more investment firms believe that a focus on ESG and increased sustainability will improve financial valuation and significantly impact the bottom line.
Communities Care About the Companies They Support
Communities have a lot of say about the companies who do business in their local area. They want to be sure that the companies who are creating and providing products and services to their residents share the values of the local community. ESG demonstrates your company’s values and priorities to the public, so the more that the community knows about your ESG efforts, the better support your company will receive from local residents—such as providing critical skills to your business, buying your products, and providing local support for property development.
Many factors make a community good: economic growth, influence, membership, social capital, fulfilment of needs, and more. The presence of a business should make the community a better place. The public is asking questions such as: Are there appropriate day-cares? Where am I able to volunteer? Your company should be asking: Does our business help make this community a place where people want to live and not just work?
When companies begin having their poor practices exposed, people start looking for alternative options. A community member with consumer choice will be questioning what a company’s ESG values are and whether they align with their own. A company’s reputation and how they operate are vital for community functioning and growth because the general public wants to know the companies in their community are improving their lives and the world as a whole. Companies that don’t live into their values risk becoming irrelevant and unprofitable.
Seizing the opportunity to tell your ESG story makes it easy for investors, employees, and customers to understand what your company is doing to be sustainable in your actions, thus motivating them to support your business.
Let’s connect and share your story.
Karri Howlett Consulting provides customized trusted advisory services to support your organization as you prepare aligned, powerful, and purposeful business plans. With over 20 years of experience working with and leading organizations creating new businesses or business expansions, or embarking on ownership transition, Karri Howlett, CFA, C.Dir. provides governance, strategy, and financial expertise to support and enhance your business.