The investment community is leading in setting the standards for overall company responsibility towards the planet, people, and good management.
By focusing on investing only in companies that meet the ESG criteria, investors, big or small, are forcing businesses to make a tremendous shift towards adopting these principles. Those who will enable successful disclosure and reporting will take advantage.
Let’s look at Investopedia’s definition of ESG (environmental, social, and governance): “A set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.”
Instead of just focusing on sustainability, the health of your workers, or the health of a business, ESG standards are an umbrella covering general best practices that a company should be looking at when communicating with shareholders and doing business.
What ESG means for EHS
It’s essential to understand and work with ESG standards so that your company can attract good investment. If you’re working towards achieving high ESG standards, then your organization can expect a good inflow of investment capital when needed. Many major investment firms, forced by political, social, or commercial pressure, strive to invest only in companies with high ESG strategies and frameworks. They prefer to put their money into companies that meet the high environmental, social, and governance standards which ESG outlines.
I’m discussing this in an Environmental, Health, and Safety article because EHS comes under the umbrella of ESG. The first step is to get your department in order so your company can be attractive to the more prominent investors adopting these standards. A well-established, positive safety culture goes a long way to making it attractive to investors and improving shareholder value. Take the lead by learning all you can learn about and become your business’s go-to person.
People tend to think that ESG is mainly about climate change or sustainability through recycling or pollution reduction, but it goes much deeper. This is a way to get companies to look at all aspects of sustainability while remaining viable and successful. Yes, the environment is a big part of that, but ESG has put that in line with the other components, social and governance, so things don’t get out of balance. Many companies focus on the environment to exclude social and governance, which has often been an enormous mistake.
Help get your supply chain in order as well.
The next step is incorporating good health and safety systems into your supply chain. Manage your suppliers, partners, and everyone working with your organization. Help them scrutinize their businesses so they can meet your EHS standards.
Suppose companies are NOT auditing the safety systems of their suppliers. In that case, they are no different from the companies that promote their sustainability but buy from suppliers with large carbon footprints –GHG emissions. Can you imagine Patagonia – a Bcorp-certified company, doing business with suppliers in Cambodia who hire child laborers? How can Apple claim to be reducing its greenhouse gases if it doesn’t check how suppliers make the aluminum that goes into its products?
Be the leader that will take this on for the health and safety area of your business and set up the standards by which your company chooses suppliers and partners. You can check out globalreporting.org or bcorporation.net to give you some guidelines on how to proceed. Proving that your supply chain follows the same safety standards as you are a significant step toward creating an exemplary ESG rating.
Is your company working towards ESG standards?
Find out the goal of your organization towards ESG. It’s a big step that shifts the organization’s priorities, resources, and budgets.
Please get to know ESG and your company’s role as much as possible. If they are planning to implement changes with ESG in mind, make sure and show them how EHS should be a big part of that. If your company is not yet looking at ESG, this might be an excellent time to position yourself.
Although it isn’t necessarily seen as a big part of ESG, Health and Safety involve everyone in your business. A good safety record in a company shines a positive light on governance and improves the social aspect of ESG. And the more EHS risks an organization faces, the more it is a dominant component of ESG.
A rising tide lifts all boats.
This is especially important if your company is starting to look at ESG as a guideline in the future. You want to ensure that the Health and Safety department is part of that way of thinking.
Setting high standards has an excellent domino effect in your area of influence. So be the leader. Set the standard and encourage your suppliers and partners to do the same.
This article is intended to overview the ESG trend that is overtaking the investment world. Future articles will get into more detail to discuss tips and steps that can be taken to help your company thrive and excel in the business climate that is still relatively uncharted territory.