While the United States is a worldwide leader in many areas, it lags behind the international community regarding environmental social governance (ESG) issues and disclosure related to ESG.
Many business and governmental leaders in the U.S. do not fully understand what ESG is, why it matters or how to best prepare for it. To answer these pressing questions, Baker Tilly's principal Scott Miller hosted a panel discussion at the Crossroads of America Leadership Summit. This article summarizes that discussion.
What is ESG?
ESG is generating a lot of attention lately as the Biden administration continues to place a high priority on these initiatives.
ESG is generally defined as opportunities and practices relating to the success and sustainability of an organization. That said, there is no universally agreed upon definition. There are standards and guidelines that are more prevalent and generally accepted, but rating agencies, investors and businesses across the globe have varying ways to measure and define ESG.
“Environmental” includes climate change, natural resources, pollution and waste and environmental opportunities. One notable company that excels in this area is Subaru, which has a zero-landfill manufacturing facility in Lafayette, Indiana. Additionally, the band Coldplay only plays at venues that meet their environmental requirements.
“Social” focuses on human capital and strength in diversity, human rights and community relations, social opportunities and product liability. Baker Tilly US has a strong focus upon the creation of an environment and programming to internally support its employees and a strong corporate environment. Our firm places a high priority on diversity, inclusion and belonging initiatives, as well as community stewardship and social opportunities. As an additional example, companies such as Roche Diagnostics and Eli Lilly and Company made their presence felt at Indiana’s recent Pride Parade.
“Governance” encapsulates corporate governance, corporate behavior and risk management. For example, cybersecurity and digital training have become increasingly important for the sustainability of an organization.
Developing your ESG strategy
The list of parties interested in an organization’s ESG strategy is not a short one. Market participants such as investors and rating agencies are certain to take note of ESG strategies, while regulators (such as the SEC and other governmental agencies) are interested as well. Additionally, ESG creates transparency around the sustainability of an organization, which in turn gives potential investors another factor to evaluate. An organization’s current and prospective employees may also pay attention to ESG efforts, as well as customers of that organization. And finally, do not discount the community interest – from competitors and local interest groups to members of the media.
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