Investopedia offers this summary of ESG criteria.
Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. 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.
The conversations around the role of “S” (how companies treat their stakeholders) and “G” (how they are governed ) have recently been coming into focus and for good reason.
Consider the following:
- According to the Public Affairs Council members of the public don’t trust corporate CEOs as much as they trust the companies these CEOs lead: 47% place a lot of trust or some trust in major companies to behave ethically but give CEOs poor marks in this area. Only 7% believe CEOs to have high standards for honesty and ethics, and almost half (47%) believe their standards are low. October 2020
- Today, only a minority of millennials believe businesses behave ethically (48 percent vs 65 percent in 2017) and that business leaders are committed to helping improve society (47 percent vs 62 percent in 2017). Deloitte Millenial Survey 2018
Senior executives at well governed companies tend not to make unsubstantiated and bold claims about their purpose or their positive environmental and social programs. Stakeholders have watched these backfire time and again, producing data like the above and further eroding trust. Instead, the best leaders move beyond talk to action, creating long term value through principled behavior which builds trust as opposed to breaking it. They know it starts with them and with full board support, and that it must happen from the inside out. In turn, trustworthy companies are attracting and retaining top talent who willingly own and model the values flowing from the top, and then naturally extending to customers and other stakeholders.
For Trust Across America-Trust Around the World (TAA-TAW) this is not a new revelation. When we built our FACTS® Framework over ten years ago to evaluate the trustworthiness of public companies, we recognized the need to create a holistic model of principled organizational behavior that gave equal weight to the E, S and G. This was long before ESG became a popular “movement.”