Environmental, social and governance (ESG) performance is finally reaching prominence in corporate and public life.
Too often and too long a peripheral concern of corporate executive teams and boards, the tide turned earlier this year when CEO and Founder of Blackrock Larry Fink announced in his annual letter to CEOs that BlackRock would “place sustainability at the center of how we invest.” His announcement signaled a fundamental shift in capital markets and, along with it, an end to the days where sustainability and ESG disclosures had a narrow focus and were of interest only to corporate social responsibility (CSR), environmental health and safety or sustainability teams.
When Fink decreed that “where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable,” he raised the profile of ESG performance to the C Suite and Board level, prompting many companies to reexamine how they measure and manage ESG data in their business.
He also confirmed what those working in sustainability already know to be true: that ESG data and performance management is critical for financial success, competitive differentiation and risk mitigation.
How an organization chooses to implement sustainability programs and track and disclose ESG data also matters. There are generally three routes to take: one, an organization can outsource all the planning, work, measurement and verification to external consultants; two, they can engage a consultancy to work alongside their staff to help plan and manage a program, and third, they may aim to recruit more staff to run and manage their ESG initiatives to bring these skills in house. Whichever approach organizations take, remaining close to the data is key.
In our experience, companies that invest in understanding their ESG data will rank highest in both CSR and financial performance.
This is reflected in broader market data. According to a 2019 report by the Australian Council of Superannuation Investors (ACSI), companies whose ESG disclosures are were rated as “detailed” or “leading” secured 82 cents of every dollar invested in the ASX200.
Simply put, companies who take ownership of their ESG data and performance perform better—for people, the planet and profit.
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