“It’s amazing how fast it’s moving,” said a vendor on the expo floor.
“It” is environment, social and governance (ESG), a set of measures to grade a company’s good, bad or indifferent performance when it comes to how environmental, social and governance issues are handled.
ESG ratings, rankings and grades have been around for some years, and the whole “ESG industry” is growing, driven by Wall Street investors, media coverage, consumer and employee demands for responsible corporate behavior, and the need for both public and private companies – though primarily at this point public entities – to be able to access capital by scoring well on ESG scorecards.
Several vendors at the NSC sell software to collect and analyze data relating to environment, social and governance issues of importance to company stakeholders (called materiality) to compile ESG performance scores.
But ESG is complex topic with its own jargon, and many smaller to mid-size companies in effect don’t know what they don’t know about ESG. For instance, what is materiality? One vendor says the first step on an “ESG journey” is to assess just what aspects of ESG are consider materially important by company stakeholders. Is it the carbon footprint size? The safety incident rate? The diversity of the board of directors? Once you understand that, you can collect data on those ESG touch points and analyze how you are performing.
ESG is currently creating a big buzz in the business world, but it’s not a flavor-of-the-month trend, here today and gone in 2023. Climate change, water scarcity in parts of the U.S., weather extremes, “green” financial reporting requirements and the booming interest in corporate behavior regarding diversity, equity and inclusion (DEI) are driving the ESG movement.
But barriers must be overcome for more companies to embrace ESG data collection and reporting. There is no single, consensus set of measurements for ESG performance. Many companies are challenged first by determining what needs to be measured (what’s important to stakeholders) and then collecting and analyzing the critical data points. The ESG frontier is something of the wild west right now. Companies are free to come up with whatever metrics they want to report. This can lead to both under-reporting what’s important and over-hyping (greenwashing) what a company wants to be known for.
There is also debate in the financial community as to whether companies with high ESG scores actually deliver better bottom line performance. There is research, surveys and data to support both ESG advocates and skeptics.
One more point: safety and health professionals, especially working outside large, public companies, need to educate themselves on the roles they can play in this relatively new world of ESG affairs. This isn’t about OSHA and EPA, but rather the SEC and GRI, for instance. One more reason for professionals to speak management’s language.