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A woman with an Attendee badge sits at a table at the Responsible Business Summit

The Rise of ESG Indicators

The Responsible Business Summit, hosted by London-based Ethical Corporation, is among the most well attended events by leaders from all sectors, providing a space for strategic discussions on business’ role in addressing our most important systemic challenges. In March, RBS New York convened 400 CEOs, along with mayors, investors, and nonprofit leaders to share insights and map out strategies for a sustainable future—one that the private sector will play a major part in shaping.

A focus on environmental, social, and governance (ESG) indicators as a long-term business strategy for improved performance and investor confidence quickly rose to the surface and remained there for the Summit’s duration. Within the dynamic conversation over two days it was clear that myopic views regarding short-term gains at the expense of a sustainable future are no longer justifiable. The business case for ESG could not be understated.

The integration of ESG factors into the corporate ecosystem is rapidly transitioning from an emerging fad to an outright disruptor in the business and social space. Company executives and rating agency representatives stressed the need for corporations to go beyond openly embracing ESG to making it CFO-driven, with the same accounting and risk mitigation rigors as applied to business units.

At present, 84 percent of the S&P 500’s total assets are intangible, meaning the vast majority of a company’s worth is comprised of non-physical assets such as patents, trademarks, and copyrights, leaving only 16 percent of a company’s value in the physical realm. ESG is viewed as the solution to investor demands for demonstrable, material risks. RBSNY19 focused its discussion around this timely call to action, bringing together robust ESG viewpoints. Below are the two that resonated most throughout the conference:

1. Board Room Accountability & Diversity are Both Lacking

“Corporate boards are male, pale, and stale.” As ESG integration into the company DNA is not yet perceived as a financial imperative, attaining C-suite buy-in on the concept is complex at best and nearly impossible at worst. Likewise, many corporate boards lack diversity, adhering to the traditional “old white men” model as highlighted in the Summit’s opening salvo above. Continuing the paradigm represents an impediment to progress. RBSNY19 surfaced several keen insights on how boards can be more socially representative and how to make ESG top-of-mind for CEOs.

  • Boards of companies leading on ESG integration are considering linking a CEO’s pay directly to ESG metrics.
  • Boards are now acknowledging diversity as a priority social issue.
  • Boards are viewing sustainability and climate change as a medium-term risk rather than a long-term one and asking for accountability on how to mitigate these risks.
Two women wearing suits and lapel microphones speak at the Responsible Business Summit
Image courtesy of Ethical Corp.

2. ESG & CSR Reporting Lack Alignment

“CSR inhibits the credibility of ESG and the transition to a more sustainable business model.” Edelman’s Trust Barometer recently reported that only 37 percent of the 33,000 people polled—represented by public respondents from across 28 markets between the ages of 25–64 and in the top quartile of household income for their age in their country—trust a company’s CEO. While some of this distrust is legitimate, much of it is avoidable with improved reporting on the company’s social strategy.

One example highlighting the disconnect between CSR and ESG is the lack of synergy between sustainability and CSR reporting. In recent years companies have begun publishing both CSR reports and annual sustainability reports, with 85 percent of S&P 500 members complying.

While it is encouraging that companies value the benefits of reporting on the integration of effective sustainability efforts into the business, many have not dedicated sufficient resources to determine how they are reporting on their consumer-facing social impacts, for which CSR teams are generally responsible. This gap between the functions of sustainability and CSR teams often causes confusion, both internally and externally, and primarily stems from two issues:

  • CSR and sustainability reports target different internal and external stakeholders.
  • Whereas sustainability reports are created with support from the business units and focus on quantitative data, CSR reports rely on qualitative storytelling and are not generally influenced by the business.

If companies are not proactive in aligning the two narratives, it can be construed as the company lacking direction and not being strategic.

Over the two-day event, the discussions and revelations of emergent trends were heartening. A sincere thanks to all the participants at RBSNY19 for collaborating on the integration of business with purpose for a better balance sheet and a better planet.

Featured image courtesy of Ethical Corp.