ESG attracts more and more attention. The proponents and the critics, investors and analysts, regulatory agencies and non-profits. Everyone seems to have a point of view on ESG. I certainly do.
In the large array of discussion and argument, what ESG really means gets confused.
I use a simple “three bucket” model to capture what ESG covers:
- ESG applies to how a company does business.
What is its environmental, social and governance track-record and performance. This begs questions such as:
- Does it clean up any environmental damage caused by making what it makes or selling what it sells?
- Is it reducing its carbon and greenhouse gas emissions in line with science-based targets?
- Does it treat all the people involved in its value chain with dignity and respect, provide proper health and safety, and ensure diversity and inclusion?
- Does it have clear and effective governance and accountability structures in place?
- ESG applies to what a company does.
Does it make products with known toxins or life-saving medical equipment? Does it sell products that increase social anxiety amongst teenagers or provide healthy food to lower income communities? Or something between the poles of “obviously bad/good”. Simply ask, would the world be better or worse off if the product or service it sells no longer existed?
- ESG applies to how a company uses its influence.
This applies to lobbying and supporting industry associations that lobby. For example, does the company directly lobby against climate mitigation regulations or water conservation efforts? A company’s influence also comes from the CEO’s public voice. Does the CEO demonstrate leadership on diversity by speaking about its importance and sharing publicly what the company is doing to support minority- and women-owned small businesses?
Next time you discuss ESG, be clear about which “bucket” of activity you’re really discussing. And if you’re not certain, pause long enough to get clear.
In September I emceed a session on the “S” in ESG at the Clinton Global Initiative. Check out the session here.