From how a company behaves in nature, to how it treats its employees and community, all the way to its leadership diversity; the environmental, social, governance (ESG) framework has become one of the most important sets of standards organizations are grappling with. But none of the three core tenets of ESG exists in a vacuum, with initiatives interdependent and inextricably linked to what’s happening in the world — and they can change in importance with public awakenings, science, and societal shifts from year to year.
So what are the ESG principles companies should be paying attention to in 2020? Read on for a list of the eight most important trends your organization should be paying attention to.
1. Worker Safety and Human Capital Management
There is immense investor pressure, an SEC proposal, and growing shareholder interest to monitor and affect the lives of workers as an ESG strategy. Look for companies to begin following employee turnover, recruitment costs, employee engagement survey responses, and training and development more and more throughout the upcoming years. The conditions that employees work under are now being viewed as tantamount to their longevity at the organization and if there is upward mobility from their entrance to the company to their current position.
2. Social Media and Youth Engagement
Younger audiences care about where they are getting their products from, and what their environmental and social footprint is, more than any previous generation. And they’re more vocal about it. Add to that the fact social media has allowed unprecedented access to the inner workings of organizations and given the public a direct voice in the boardroom. Social media now directly impacts public perception faster than legislation and regulations can attempt to catch up.
3. Board and Executive Diversity
One of the most important trends in the ESG space right now is looking at an organization’s diversity on its executive teams and their corporate hierarchy. What was once an opaque process for deciding who gets promoted and elevated to executive positions, now has a push for more transparency and accountability by every level of the company. Investors are measuring the success of companies not just on the dollars and cents, but on who is running them, and what their diversity make up is.
4. Supply Chain Pressures
With the COVID-19 pandemic, U.S. companies have undergone enormous pressure around supply chains and how dependent on foreign countries they are. Additionally, companies that do business in countries with lax labor standards, or severely undervalue their employees, are being met with heightened public scrutiny. One of the growing trends around ESG and supply chains is an emphasis on due diligence and making sure supply chains do not harbor risk to small businesses or the labor force that creates it.
5. Protests and Social Movements
Despite a global pandemic, in many ways, 2020 in the U.S. can be defined by the social movements that have gained new traction. Anti-racism and anti-discrimination policies are being prioritized and positioned in new ways at organizations that were previously left up to an HR department or outside consulting. Now, taking stances on the latest social movement has become common practice for organizations of all sizes to make their voice and opinion heard. Organizations are facing increasing pressure from the public to address what is going on in the news and to make changes internally as a result.
6. Climate Change and the Environment
Organizations are looking inward at their carbon footprint and how they tie directly to climate change around the world. With organizations pledging various green standards and clean energy commitments, the focus on climate change has made it even more apparent that taking a stand on this issue, and opening up the books to show transparency, will become more pressing as the years progress. With organizations across all industries aligning their lobbying efforts with the Paris Agreement and taking their cue from the European Union, climate change has become a defining component of ESG strategies.
7. Biodiversity and Exogenous Factors
With COVID-19, many of the structural flaws around parts of the economy are being taken into consideration for strategic decisions going forward. Investors are looking at how much the biodiversity of the planet will be affected by corporate goals, and similarly, how these goals can be diverted by exogenous and unforeseen factors like a global pandemic or natural disaster. The interdependence between expanding your business across borders, and the direct toll it will take on the environment, is being addressed by organizations of all sizes around the globe.
8. Lobbying Transparency and Accountability
Since Citizens United vs. FEC paved the way for money and resources to be given towards political initiatives, a greater call for transparency and accountability in lobbying and advocacy has been ongoing. Organizations are being asked by their employees and investors to address where their lobbying efforts and political action committee money is going, and more importantly, why? For organizations that are directly tied to legislative and regulatory risk, modern ESG strategies are looking into the financial implications of lobbying and using employee-funded PAC money on political candidates and causes with greater transparency.
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