How ESG is Changing the Business World

More and more consumers, employees, and investors in today's global market want companies that align with their values. While no two people will have the same exact expectations for the companies they support, a common set of criteria has emerged in recent years around Environmental, Social, and Governance (ESG) issues.

Business decisions affect much more than just the bottom line. Investors want to be involved with socially responsible and conscious companies, customers are considering a company’s effectiveness on ESG issues when making a purchase decision, and employees are doing the same when considering employment options. As a result, ESG is forcing businesses to adjust to the emerging expectation that they should create value for all stakeholders, not just shareholders.

So What is ESG?

ESG considerations are criteria that investors, customers and employees use to determine whether to invest in, do business with, or work for, a company. ESG issues are non-financial factors, but their significance in an investment decision has become increasingly important. These evaluations consider how companies perform as members of their community.

The environmental criteria includes how a company uses natural resources, its pollution output, and other climate-related factors. The social criteria weighs factors related to working conditions, employee relations, and a company’s presence within its community. And governance deals with things like the makeup of a company’s board of directors, the compensation and oversight of top executives, and the distribution of decision making rights.?

Each of these factors is weighed differently by investors, customers, and employees but their collective importance for the employees and environments they reside in cannot be understated.

It Makes Cents

ESG is not just good for business relations, it also makes business sense.

One way it accomplishes this is by putting a focus on taking care of employees. This means thinking broadly about whether the employee-base is as diverse as it should be, whether the promotional practices are fair and equitable, and whether salaries and benefits are as equitable and encompassing as possible (for example, adoption? and adoptive parent benefits), among other things.

Another way ESG makes business sense for companies is by focusing on the communities they serve.? This attracts more customers. When a company invests in a community and works to improve the broader social? and environmental issues, it creates a connection and a bond with the customers who live and work in the community. ? According to a survey by Deloitte, millennials in particular believe that “improving society” should be a primary purpose of business, rather than? just “generating profit.”? Businesses who focus on this will stand a much better chance of recruiting millennial employees and customers than those that do not.

ESG is also good for the bottom line.? According to Institutional Shareholder Services (ISS), increasing ESG helps shareholders, too. In fact, in their May 2021 whitepaper report , ISS found that a company’s increased commitment to ESG leads to more profitability, higher growth, and higher returns.?

Who Does it Best?

Numerous businesses have raised their standards as a result of increased focus on ESG. With so many companies being more and more involved in modernizing their operations, one may wonder: who is doing it best and how are they doing it?

J.B. Hunt Transport, one of the biggest shipping and logistics providers in the world, provides a good example of what it looks like when a company puts a focus on ESG. In addition to delivering some of your favorite products to your favorite stores, J.B. Hunt also is involved with initiatives to end human trafficking and modern slavery.?

The company has an active program to training their drivers how to identify and intervene when they see signs of human trafficking, according to Chief Sustainability Officer Craig Harper. Not only this, but J.B. Hunt also supports organizations such as Truckers Against Trafficking to assist in the broader systemic fight against modern slavery and human trafficking.?

What’s more, the company has been reducing its carbon footprint and working to set an example for other large companies, according to its sustainability report from earlier this summer. From avoiding carbon dioxide emissions with intermodal transportation to increasing the use of alternative energy vehicles, J.B. Hunt is well on track for a more sustainable future. You can learn more about J.B. Hunt’s ESG initiatives here in my podcast discussion with Craig Harper.

Putting the “E” in ESG

We are all aware that we need to treat our environment with care, and one company taking the lead in this area is Clorox. The company, famous for its disinfecting products, has been busy setting some high environmental standards for itself in the coming decade with its new IGNITE strategy .?

With IGNITE, Clorox is making ESG a priority in every decision. Environmentally, Clorox has committed to make 100% of its packaging “recyclable, reusable, or compostable” by 2025, and by 2030, they will make all Clorox facilities zero waste. The company has already begun implementing changes to its climate strategy by running on 100% renewable energy in the US and Canada starting this year.? These changes create value for their stakeholders by creating a socially and environmentally conscious business. If you would like to learn more about Clorox’s sustainability initiatives, listen to my conversation with Ed Huber, Chief Sustainability Officer, on the BIS podcast!

Another example of putting the “E” in ESG is the circular economy process.? Trove has done this for the retail clothing market. By developing a robust resale market for premium, quality clothing brands, Trove is reducing the environmental harm and waste that occurs when clothing is discarded by its original retail owner. They call the process “circular shopping.” By working with brands such as lululemon, Levi Strauss & Co. and Patagonia, to buy back gently used clothing, Trove provides the infrastructure to list quality items in online stores, and ship them to customers.? This process creates brand loyalty and growth for the brands they serve. Instead of letting old clothing go to waste, Trove helps style find a second, third and maybe even a fourth home!?

The Future with ESG

The more businesses gain data on their ESG metrics and that of their supply chain, the more they can improve their sustainability practices.

With ESG, sustainability will? become a more normalized, integral aspect of business strategy.? Decisions surrounding workplace culture, the environment and social justice will be weighed with the importance they deserve.? Transparent governance by senior leaders will become the norm, and the overall effectiveness of business will improve.