#95: What is ESG? Basics of What You Need to Know About Environmental, Social, Governance
September 21, 2022 | 34 minutes 27 seconds
Environmental, Social, and Governance has been a growing topic over the last couple of years. Never heard of it before? Well, you're not alone. Jill James takes the mic to explain ESG, why your company should care about it, and how you can prepare for ESG factors as a safety professional.
Show Notes and Links
This is the Accidental Safety Pro brought to you by HSI. This episode was recorded September 16th, 2022. My name is Jill James, HSI's Chief Safety Officer. Today my guest is me. Hope you're all okay with that today, I wanted to come here for a bit just to share some information with you on something that our industry, as EHS professionals has been talking more and more about recently, and that is the topic of ESG, which stands for Environmental, Social, Governance. You might have noticed for anyone out there who follows me on LinkedIn, that I put out a survey a couple of weeks ago. And the question, the single question I asked was this, it was, "Have you been asked to provide data reporting or engagement on ESG, Environmental, Social, Governance?" And 38% of you said, "I've never heard of it? I don't know what it is." And the balance of you either answered, "Yes, you have been asked." Or, "Yes and you're learning about it in real time." And even a small percentage of you, 6% said, "It's now part of your job title."
So I thought I would come here today to try to frame up for that 38% of you who said, "I've never even heard of this before," a description that I've been using recently to help kind of frame up like, gosh, how do we even talk about this? Or how do I wrap my head around what this even is? And so I'm practicing on you all today to try to describe in as most plain terms as I can think of, what ESG means. And now this isn't the first time that I've explained it in this fashion. So you're not my Guinea pigs in this subject. I actually tried this out on my partner, who, for any of you in the EHS space who are listening, ever tries to explain your job to the person with whom you may share life, their eyes may just suddenly go blank, because they're like. "EHS, like whatever. I don't even understand what this is." I know my partner, the first time I tried to explain what ROI was for months, he thought I was talking about a coworker named Roy.
So let's see if this works for you today because I tried this description with him on ESG and what it is. And now it's the only thing he talks about. He's like, "Oh, that thing about ESG that you're doing, or that you're talking about with your company and people in your profession." Now he thinks he's all smart and knows a lot about my job. So if it worked for him, certainly it must work for other people, so hang tight with me here today. And let's see if I can help unwind for that 38% of you who are wondering, "What the heck is this? What the heck is this new acronym that's coming at us?" And so that's exactly what it is. It's yet another acronym that we get to add to our quiver of already big bunch of acronyms that we use in our work. I mean, we all know OSHA and things like Lockout/Tagout, and EPA and SDS, all of those things. So here we have another one, ESG, Environmental, Social, Governance.
So what is it? Well, simply it's a set, rather, of self-determined criteria that's used to financially evaluate a company, to determine and manage risks and to measure social and environmental responsibility. It's not a new term. In fact, it was actually mentioned first in 2006 in a United Nations report, titled Principles for Responsible Investment. And that term has kind of snowballed ever since and it's finding its way into our professional practice as EHS professionals. So in order to try to just unwind what this is and maybe make it resonate with us on a personal level, I'm going to ask you a couple of questions that you can think about in answering it on your own as you're listening today.
So the first question is, are there companies, brands or businesses where you spend your money, you support and you like them? Like you're a brand loyalist to a particular company or set of companies, whether it's a global or a national, or maybe even a community based company, wherever it is that you live. So do you have one of those kind of held in your mind right now? All right. Assuming you do, second question, it's opposite of that first one. Second question, are there companies, brands or businesses where you will not spend your money or support in any way? Companies that you will not even darken their door, if they're brick and mortar or spend your money ordering anything from them online at all. And that might be a question that kind of stirs up even emotion for you. If you've got a company or companies in mind, whether it's in your own local community or on a global or a national stage. All right. So thinking to those companies that you just held in your mind, the ones that you support and the ones that you don't, what's your reason for that?
Think about what your reason for that is. So what are the factors that go into you deciding whether you support or don't support a particular brand or company? And so your answer in your mind might fit into a category such as something to do with their environmental impact. Or perhaps their employment demographics. Or the health and safety of their employees and how they practice that. Or something around compensation practices. Or maybe something about their community service and involvement. Or board level demographics. Or the way they handle data privacy or cybersecurity. I know when I first thought of these questions for myself and who I support and who I don't, that particular one on data privacy and cybersecurity came to mind for me as well, of course, as health and safety. Maybe it's ethical practices or their political support or just something I didn't simply name here. So do you have an idea in your head right now about why it is you support or don't support a particular company or brand?
Okay, so keeping that in mind, I'm going to dive just a little bit more into what is E, what is S and what is G. So E stands for Environmental in this ESG acronym that we're learning about today. So what sort of things might land in that E, Environmental bucket? Well, it could be a company's energy usage or their water usage or their waste management. Something with recycling waste or hazardous waste. Their carbon footprint, or their greenhouse gas emissions or their environmental incident management or their sustainability and climate change initiatives.
Now this litany that I just shared with you, isn't inclusive of everything that lands in that E bucket, but those are examples rather. So then let's move on to S for Social. What things might land in the S bucket of ESG? Well, it might be employee demographics that might be split out by gender or race and ethnicity. It could have things to do with their diversity equity, inclusion practices, policies. It could have a lot to do with employee health and safety, the training, the way that we do what we do as a profession in organizations. It could have to do with incident management or community service that might be split out by volunteer time or charitable giving within an organization. And then we move on to G, the Governance. So what sort of things might land in that bucket? Well, examples could be the makeup of a board or executive management. The demographics of that board that might be split out by gender, race or ethnicity. Could have to do with the company's ethics and anti-corruption practices, harassment or discrimination training, data privacy policies, and procedures, or cybersecurity controls. So those are just some examples of things that might land in that ES or G governance. E for Environmental rather, S for Social, G for Governance. Into those three buckets. So when you think back to those companies that you support or that you definitely stay away from, and you think a little bit deeper about maybe the multiple reasons why you support or don't support a particular company or brand, is it starting to get a little bit clearer as to what your reasoning is that might fall into one of those three buckets under ES and G or across all three of them? It could be multiple reasons, right. Okay.
So let's take this just a little bit further. And assuming that you had a strong opinion as a human being, as an individual, as a consumer of a particular brand or company, do you have an impact? Does your opinion matter? Does your opinion matter as that consumer? Well, of course it does, because you impact the sales and the brand loyalty and what people are talking about regarding that brand. Now, let's change positions just for a second here and think about, well, what if you are the employee of one of those organizations? Do your opinions on those issues that land in ES and G matter? Well, yeah, of course they do. If you're seeking employment or thinking about changing jobs, you're going to go to an organization, if you have that option in luxury, that aligns with your system. And you're going to seek out companies where you want to work, that align with things that are in that ES and G category.
Or at least you're maybe reading about them. You're talking with community members. You're maybe talking with people who already work for the organization, or maybe people who've already left when you're reading things on reviews like Glassdoor. So let's change hats again. What if you're a community member? What if you are a community, maybe you are a city or a state or a nation, and you're wanting to attract and bring brands, organizations, companies to your community? Are the ways that an employer operates under those ES and G categories, are they going to matter to you as a community when you're trying to attract a brand into your community? Absolutely they are. And then changing once again. What if you're an investor?
Are you going to be interested in an employer's practices under each of those categories? Well, sure, because you want something that's going to be financially secure for you, if you're an investor. That's going to make money for you and also aligns with your values. Same thing if you're a corporate board member, same thing. You don't want your professional reputation tarnished, and you really want to align with companies who are strong, not weak in those categories of ES and G. So then another question might be, well, are there any scandals that have occurred because of ES and G? Essentially something that created bad press for a company, or maybe something that happened that was so bad that it changed an entire business practice, or maybe sent a company into bankruptcy or some other financial or legal jeopardy? Sure there are. Sure there are. And those are things that are a Google away for you, or you can think back about companies that maybe you're like, "Whatever happened to that company? What happened to them?" But some that I found just searching the web. Do you remember the American Apparel Brand, the maker of T-shirts? They've kind of gone away and they had a problem with their founder and some alleged misconduct, and it really created some bad news for them. And then in 2017, remarkably, 62% of ExxonMobil shareholders went against their management's recommendation by voting to require the world's largest oil and gas company to report on the impacts of climate change to its business.
So that was driven from within. And there's been some, in the headlines, what do we see very often that has to do with DEI or diversity, equity and inclusion? Well, gosh, nearly every day, if you're paying attention, we're reading about where are all the women at board levels? That's one that we see over and over again, is something that people are paying attention to. So this is something that I think about, has this been happening? Have these sort of ESG things been happening, that have a negative impact on a company for a long time?
Well, certainly they have. This isn't anything that's new. It's just that things are being collected and being looked at more globally than they ever have before. So if a company wants to really lean into this ESG business, what would they do? So what are companies doing right now? So let's say an employer wants to control their risks that are specific to them, because they want to insulate themselves as much as possible from one or more of those scandal type things that I was just talking about. So what could a company do? Well, they can look inward, or as I'd like to say, maybe do some strategic navel gazing, really looking inside themselves. And trying to figure out, what are their biggest risks in each of those ES and G categories? So they might start out by asking themselves, "What are our biggest risks in each of those categories?" And then, depending on the type of work activity they do. And they might ask themselves then, "How can we manage those risks better than we're managing them today? Like incrementally, what can we do better tomorrow than we're doing today?" And then set some goals around those, some benchmarks, perhaps. Like, "We are going to reach this point in this many months or quarters or years." Depending on what it is. And then once they've decided, "These are our biggest risks in each of these categories as an individual company. Here's how we've decided that we can do better. Here are our goals around those."
The next thing that companies are doing is that they're being transparent about them and they're telling everyone about them. And when I say telling everyone about them, that means from their consumers to their employees, to their communities, to their investors. And they're saying, "Here's our ESG profile. Here are the risks we've identified for us. And here's our goals for the future." And then note that no two companies are going to have identified necessarily and prioritize the same type of risks. So if you think about oil and gas industry, for example, they may be heavily focused on environmental risks, whereas a tech company might be really focused on data security. So each company may lead with something else. They are likely addressing something in each, or multiple things, in each of the ES and G categories, but they may prioritize them differently, just simply based on the type of work that they do and the type of risks that they have. So another question, since our work as EHS professionals, is compliance driven often.
So you might be thinking in your head, "Are there any ESG specific regulations? Is there a way to be ESG compliant?" And the answer to that is, no. There isn't a prescribed box that we check for each type of employer to say, "You've now arrived in terms of ESG." Now there are definitely laws in some of those categories that I was talking about under each of the ES and G buckets, such as harassment or OSHA compliance or labor laws or pollution laws, but there is no one ESG law. It's more like an employer is saying, "Yes, we're going to be compliant with existing laws and we're going to dig deeper, really evaluating our risks. And we're going to be even better. And we're going to be transparent about our goals and our direction and where we're going. Transparent with our customers, transparent with our employees, transparent with our communities and our investors."
I'm hoping that's making sense with you right now. So you might be wondering, "Is this ESG movement ripped from the headlines? Is it something brand new?" Again, as I mentioned earlier, it's really not. If we think about the drivers for this, that started back in 2006, with that UN policy that I was talking about. It's just that it's been building momentum ever since. And while it's been a focus with really big name companies for quite a while, it's starting to pick up steam across all employers and across all company sizes. So if you think about some of those big name companies, and you might even just stop this podcast right now and start Googling some big name companies you can think of, and the word ESG. Like you might type into Google, McDonald's and ESG. Or Airbnb and ESG. Or Coca-Cola and ESG. Or Proctor and Gamble and ESG. You'll find that each of these companies or any that you decide to put into Google, are going to have a landing page on their websites where they're describing what their approach is to ESG. What their initiatives are. And so, yes, that is definitely beginning to be quite mainstream for big recognizable brands that you and I all know. But what about some of those smaller companies?
What about some companies we might consider mid-market or smaller employers? Are they coming into this? Are some of the companies that maybe you work for right now, are they starting to talk about ESG? Well, if they're not now, they probably will be soon. And one of the drivers for that is that these bigger companies, like I just mentioned, like Target or Lowe's or Walmart or Disney or Home Depot, while they're doing their work on ESG and determining and assessing what their risks are, they're remembering that their risks might be some of their suppliers. And so, one of your companies might be supplying one of those bigger companies, because you roll up to that bigger brand. So these bigger name brand companies are insisting that their suppliers have ESG initiatives and that they share those initiatives with them. And of course, this is all about risk reduction and risk avoidance.
No company wants to be tarnished or taken out by something they didn't know about, or didn't have clear sight of from one of their suppliers. So, gosh, is this some kind of overreach? Is there some kind of precedence for bigger employers asking smaller suppliers to provide information to them? Well, you and I sure know that it's not unprecedented, when we think about it through our lens, through our EHS lens. So we think about construction managers or controlling employers, requiring subcontractors to have every employee, every subcontractor that comes onto a site or facility, have an OSHA 10 or an OSHA 30-hour card. We're all familiar with that, because that's a way to avoid risk. And so the controlling employer, the construction manager often are requiring that of their subcontractors that are coming onto their facilities. Or how many of you in your work have asked subcontractors who come to your facility for any reason, to provide you with their policies and their procedures around environmental health and safety? Or even asking them to provide proof of their insurance before you allow them to come onto your site, or even to be considered for a bid to do work at your facility? So it's really not unprecedented. So don't be surprised if you start hearing rumbles of this, if you work for a smaller organization, or maybe you're already hearing about it where you are right now. So remember you can go ahead and just try good old Google with company names and start reading and seeing what companies are reporting on, what they're leading with, depending on the type of work activity that it is that they do. Another thing that you might be curious to search is about investments, because that's certainly another place where this ESG thing got started as well.
So if you want to type into Google, IRA and ESG, so Individual Retirement Account and ESG or 401k and ESG. That'll lead you down a rabbit hole that will let you know that when you're making investments, you can actually choose to invest in companies who have met certain ESG criteria and that are transparent about what they're doing. And so you can change your portfolio to be investing in companies who are being transparent about what they're doing with ESG.
So another way to look at it and learn about this for yourselves. So a question you might be thinking is, "Oh my gosh, is this something else that I'm going to have to do in my job? Is this going to become part of my job title?" It might. It might, but also know that there isn't necessarily one single human being who's responsible for all of this ESG stuff. Now in some really large corporations, that might be true. But if you think about, who's the person in your facility, who's responsible for cyber security, water usage, sexual harassment training, they're not the same person. So these are likely three different people just in this example. And they eventually all roll up and report to a CEO or a president or a leadership group. So that top person at your organization is going to be the person or persons, who's driving the ESG initiative. And they're going to be asking their team and you might be one of the members of that team, to help identify risks under ESG, to set goals, to report in data, in order for your organization to tell your ESG story. And I'm hoping that makes sense to you. So when you think about job titles that might be asked to help evaluate risks and set goals and report data in, it might be you and I. It might be EHS professionals. It might be the HR professionals who also listen to this podcast.
Thank you very much HR people for being here. It might be security and risk professionals. It might be environmental managers, operations managers, maintenance managers, diversity equity and inclusion leaders, learning and development leaders, IT professionals, logistics people, supply chain and even finance. So there may be a number of you who may be part of a greater team to work on your ESG initiatives and to regularly report on your progress on those things that you've decided your company may be benchmarking. And it is very likely that the entire initiative will be driven by your leadership or your leadership team. So as you think about this, first, I hope that it's making a little more sense for the 38% of you who said, "I've never heard of ESG. I don't know what that is." But if you think about, "Gosh, I'm being asked now, or I wonder if I should be proactive about this and even ask my leadership team, is this something our organization is working on? Because if it is, then I want a seat at that table."
You may be asked to specifically provide certain types of information and data, or your leadership might come to you as the EHS professional and say, "I think you need to be at this table. We're really not sure what we should be reporting on." And so they'll look to you to be that leader, to be that subject matter expert, to determine what are those things that we could be benchmarking right now and setting goals for?
And that's where you get to shine. And so you might be reporting or talking about training that you're doing and data on training that you're doing, or the way that you're managing chemicals or providing access to your employees to SDSs, which is a pretty basic thing. But that could be part of it. The way that you're identifying hazards and abating hazards in the workplace and the ways and means that you use to identify them. And what did you identify this year versus last year? Or this quarter versus last quarter? Or the types of injuries and illnesses or incidents that are occurring in your facility and the severity, maybe rating with them. Or the way that you have learning paths and onboarding paths for your employees, when you're bringing them into your place of employment, in ways that are going to empower them and teach them about environmental health and safety practices, but then maybe, what are you doing for the lifespan of that employee? And maybe developing them over time and keeping them healthy and safe along the way.
So these are all things that you can be thinking about and lots of different ways to go, depending on the roles and responsibilities that you have as an environmental health and safety manager. No two of us anywhere that are listening here today in our work histories have done exactly the same job. We all have different roles and responsibilities. We may have different titles in the way that we are asked to work and operate in our organizations is going to be different. But I know that you're going to be able to come to the table to help out your organization, tell your ESG story. And I guess the last thing that I wanted to say about this, is when you're reading about ESG right now, you may also come across the word sustainability and that's really common as well. And I think what it seems to be, is maybe the precursor term that employers were using before ESG became suddenly cool. And so, as you're Googling around reading about other, finding other companies, ESG landing pages, you may see that word sustainability as well. And employers may be leading with that. They may be calling it in an ESG and sustainability. They may be calling it simply sustainability, but then you'll see those topics of Environmental, Social, Governance, on their landing pages. I know I had a conversation with someone who will be a podcast guest with us shortly about his company's initiatives around this. And he said, "Yeah, we don't call it ESG, but we call it sustainability." And then started telling me about all of the things they've been doing for a millennia in those three categories. And so I look forward to sharing that information with you and know that future podcast guests, I will be asking about, what are their ESG practices, so that you can hear from others like yourselves and what their organizations are doing as well.
So hopefully I succeeded with you today in trying to at least take a first try at figuring out what is this Environmental, Social, Governance all about? And I promise we'll continue talking about it on the podcast. So thank you again for spending your time listening today. And more importantly, thank you for your contribution toward the common good making sure your workers, including your temporary workers, make it home safe every day. If you aren't subscribed and want to hear past and future episodes, you can subscribe on iTunes, the Apple Podcast app, or any other podcast player you'd like. We'd love it, if you could leave a rating and review us on iTunes, it really helps us connect the show with more and more health and safety professionals like you and I. Special thanks to Naeem Jaraysi, our podcast producer. Until next time, thanks for listening.