Purpose, ESG & DEI: The Keys to your Next-Gen Success
By: Mariam Haddad, Alejandra Veltmann & Carmen Herrada
A major change in the way people think has happened across different dimensions at the same time. Today’s world is undergoing rapid, massive evolution. Converging issues like climate change, an ongoing global pandemic, The Great Resignation, and the 4th and 5th Industrial Revolutions call leaders to pivot.
PURPOSE: THE FOUNDATION OF LONG-TERM SUSTAINABILITY
Long-term sustainability and profitability are mission-critical for today’s executive leaders. BlackRock Chairman and CEO Larry Fink famously noted in his 2019 annual letter to CEOs that a company must have a purpose beyond profit, or they would risk being ousted from the firm’s investment portfolio.¹
ESG: THE FRAMEWORK FOR PURPOSE-BASED BUSINESS ACTIVITIES
Succeeding in business today means that key lines in the picture need to be re-drawn. ESG is the new framework that includes Environmental (E), Social (S), and Governance (G) factors providing a foundation for business activities. An adapted set of thoughts re-aligning beliefs, values, meaning, and required activities have emerged as a framework for businesses that want to be long-lasting. This long-term view is what gives the term “sustainability.”
WHAT IS THE ESSENCE OF ESG AND WHERE DOES IT BEGIN?
ESG begins with governance. Organizations with a strong governance structure take into consideration all factors that impact long-term value creation including all stakeholders and environmental (“E”) and social (“S”) topics.
1. The framework of controls, practices, and systems an organization uses to guide its operations.
2. The mechanism by which an organization’s people are held accountable.
3. The means by which actions are aligned with its purpose, vision, mission, values, and strategic plan.
4. Risk management, and administration.
COMPANIES HELD ACCOUNTABLE THROUGH METRICS MEANS SUSTAINABILITY
Companies need to be held accountable. Companies need to monitor performance with key performance indicators or qualitative and quantitative metrics. Investors are asking for the disclosure of key ESG metrics from companies. According to “The Economist,” almost 70% of S&P 500 companies disclosed ESG metrics in 2020. ESG reporting creates the transparency necessary to allow shareholders and leaders to see if key changes are being made within the allotted recommended, and agreed-on timeline.
Here are some examples of ESG metrics by category:²
WHY DOES ESG MATTER?
Today’s scope of current consumer and organizational decision-making parameters bear more depth, dimensions, and considerations than previously considered. This shift is reflected in ESG reporting, which has evolved from a corporate responsibility focus into a strategic decision-making investor focus.³
The level of expectation on the transparency and quality of information has become more important than ever. Corporate governance can result in supporting stronger growth and more inclusive societies when ESG Reporting is successful and considers all stakeholders as audiences.
AUDIENCE 1: THE INVESTOR: “WHERE SHOULD I INVEST MY CAPITAL?”
Investors and other stakeholders rely on this information to make investment and lending decisions. As a result, accountability has extended beyond financial results.
What is one way that organizations are being held accountable?
Investors are looking at ESG metrics such as workforce turnover rate as an important measure of sustainability. Employee engagement is directly related to employee retention. Billionaire and serial entrepreneur Richard Branson approaches his business model with the idea that the employee is #1, not the customer. What is his basic premise? It impacts the bottom line, which matters to investors.
According to Gallup Reports, highly engaged workplaces see 20% higher sales, 21% higher overall profitability, 10% higher customer ratings, and up to 67% lower turnover.⁵
Let’s look more closely at how different types of audiences are engaging with the information provided by ESG Reporting.
Emplify created a survey called, “Employee Engagement Trends 2020,”⁶ which presents 6 key findings highlighting a key takeaway: a satisfied employee doesn’t mean an engaged employee.
Why is this critical?
Investors have the option of retiring funds from lower ESG performing investments.
AUDIENCE 2: THE CONSUMER: “WHY SHOULD I BUY FROM YOU?”
Consumers rely on information to make informed buying decisions through a wider and more judicious lens of criteria that will determine where they spend their dollars. When it comes to brand recognition, the buying decision of one person has a lot more influence than it did before. Today’s consumers are well-informed, and equipped, to make buying decisions that align with their personal beliefs, goals, and needs. Wider criteria and perspectives such as the social and environmental responsibility of a brand can be instantly considered at a buyer’s fingertips.
In the age of influencers and followers, it has never been easier for one upset consumer to instantly boycott an entire brand, deeply impacting the bottom line of a company overnight. The Ethical Consumer Movement⁷, founded in 1989, utilizes boycotts to exert economic pressure on some of the biggest companies to change their practices. They publish an up-to-date, comprehensive list of current boycott calls from campaigning groups around the world. ESG Reporting provides the framework to ensure greater social responsibility, helping to protect brands from this type of outcome.
AUDIENCE 3: THE EMPLOYEE: “WHY SHOULD I WORK FOR YOU?”
Recently the Securities and Exchange Commission (SEC), mandated “human capital” disclosures. As a result, many companies are now including ESG disclosures on their public filings including key metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics, diversity, and health and safety. Greater equality in wages is a hot topic due to the large and growing wage differential between median-paid workers and top executives.
Employees rely on this information to choose the most meaningful and satisfying company to invest their lives and talents in. Prospective Employees are demanding healthier, more inclusive, and meaningful work environments. They are choosing opportunities that allow them to show up authentically and be driven by the purpose and meaning of the organization and team they work within. Massive external change, internal organizational change, and changes within family dynamics have placed an incredible strain on the mental health and mindset of employees.
HERE ARE SOME KEY QUESTIONS POTENTIAL CANDIDATES AND EMPLOYEES ARE CONSIDERING AS THEY THINK ABOUT WHERE THEY WANT TO WORK:
FIRMS FACE PRESSURE FROM STAKEHOLDERS OF ALL KINDS TO IMPROVE ESG EFFORTS⁸
HOW DO PURPOSE AND DEI FACTOR INTO THE ESG EQUATION?
Purpose, Diversity, Equity, and Inclusion (DEI) has far more depth and dimension than previously addressed.
Purpose and DEI are embedded in the “G” and “S” of ESG providing both the foundation and the heartbeat that brings sustainability to life.
Purpose defines the reason an organization exists. It also defines why a human being exists. Human performance is directly tied to one’s intrinsic belief in one’s inherent purpose.
Creating meaningful and satisfying work experiences and sustainable engagement requires the intersection of organizational purpose and individual stakeholders’ purpose in a value-driven way. People who live their company’s purpose daily through their own life’s purpose actioned through their strengths fuel sustainability.
Looking at the Workforce anticipated in 2025, we can see millennials and younger generations will be critical for organizational sustainability. Millennials and younger generations are characterized as being more focused on:
Boomers, on the other hand, are more focused on strong work ethics and employer loyalty.
“SOME THINGS ARE INHERENTLY EASIER TO MEASURE THAN OTHERS. BUT THAT DOESN’T MEAN THEY’RE MORE VALUABLE.”⁹
How can an organization activate a living brand that has higher employee engagement across differences to generate greater value in the marketplace? By empowering its people to understand that their purpose is as important to the organization as the brand purpose itself. For the first time in history, more than 4 generations will exist at the same time in organizations stretching from Boomers through Gen Z. One of the main advantages of a multigenerational workforce is the opportunity to increase learning. Each generation has key benefits that it brings to the table.
For example, while there can be differences in familiarity with technology, Boomers have a strong loyalty to their employers. Meanwhile, younger generations are interested in ESG initiatives and are more mobile. They believe that everyone can make an impact together to create a better world. They believe in their life’s purpose.
This is a major paradigm shift for Boomers who go to work for very different reasons.
Purpose-powered potential activated through engaged employees allows your best key brand ambassadors to build your corporate reputation in ways that drive the value of your brand in the marketplace. Purpose-based performance can then be measured through people-performance metrics based on multiple dimensions.
MEASURING THE HUMAN FACTOR IN ESG REPORTING
Creating successful social responsibility metrics deals directly with embracing and honoring the human spirit. The report also stated that the most prevalent sustainability ESG metric currently incorporated in executive incentives is diversity & inclusion as this measure has both a “talent” angle and a “social responsibility” angle.
The report also stated that the most prevalent sustainability ESG metric currently incorporated in executive incentives is diversity & inclusion as this measure has both a “talent” angle and a “social responsibility” angle.¹¹
THE BOTTOM LINE
ESG provides the transparency needed for shareholders, boards, executive leadership, employees, and the community to be in alignment resulting in thriving…today and tomorrow.
Roughly $30 trillion representing a third of all globally, professionally managed assets are now subject to ESG criteria representing an increase of more than 30% since 2016.
Investors poured more than $70 billion into ESG equity funds between April and June of 2020 alone.
It is important to remember that it is the human spirit of the people which brings ESG standards to life so that the idea of a purpose beyond profits can be fully actualized.
DEI is the heartbeat through which talent and social responsibility come to life. Engendering a culture of curiosity and learning allows organizations to leverage existing capabilities and talent resulting in employee engagement. This is the key that enlivens ESG metrics into organizational sustainability.
Powering next-gen commerce and community requires organizational sustainability as a key economic anchor to support stronger growth actualized through societies that are inclusive and growing in resonance.
The elements of Purpose, ESG & DEI provide a connected and holistic mechanism that when leveraged fully, will power your organization’s next-gen success serving greater societal value, achieving purpose beyond profits, and long-term sustainability.
Mariam Haddad spent the last 15 years pioneering, perfecting, and delivering one of the most comprehensive communication triage and global leadership spring-boarding programs on the market. Her company, The Performance Communication Company, offers agile advising, learning, consulting, and coaching to global executive leaders, senior management, SMEs, rising talent, and entrepreneurs in Energy, Tech, and Medical Sectors.
She has designed, managed, and delivered 40+ successful consulting engagements, trained over 14K leaders, coached over 150 leaders with over 1000 coaching sessions, as well as developed and delivered 6 + courses, 400 workshops with over 180 hours of original content proven to global audiences from Asia, Latin America, the Middle East, Europe, and the US. A creative, visionary executive, her approach is sought after by leaders of organizations and their management teams to unleash the fullest potential of organizations, people, and products through purpose, leadership transformation, and the art of effective communication. Featured speaker for Fortune 500 Companies like BP, Shell, TechnipFMC, Dr. Pepper, DFK International, Murphy Oil, Sinopec, BGP International, as well as at TEDx Houston, The Diversity Summit, SASE, The University of Houston Wolff Center, NASA, Boeing and many others.
Alejandra Veltmann is the Founder and CEO of ESG Lynk, Inc., a woman, and minority-owned sustainability strategy and reporting advisory company dedicated to aligning corporate objectives with relevant environmental, social & governance (ESG) factors to improve investor and capital market attractiveness.
With nearly 30 years of experience, Ms. Veltmann previously served as Chief Financial Officer for private companies, Chief Accounting Officer for two NYSE listed energy companies with global operations, and 10 years as an auditor with Arthur Andersen and KPMG LLP. She is a certified public accountant and is an alumna of the Advanced Management Program at Harvard Business School. She is also a graduate of the Harvard Women of Boards Program and is a Governance Leadership Fellow of the National Association of Corporate Directors.
Ale also serves as Independent Director and Audit Committee Chair of the Board of Structural Integrity Associates, a specialty engineering company serving multiple industries including Nuclear, Fossil, Oil & Gas, Renewables, and Critical Infrastructure.
As an ESG practice leader, Carmen Herrada, partners with organizations to align their people strategy with their business strategies, define the competencies that will support their strategy, and build a purpose-driven culture. She has held different executive roles in leading manufacturers, working to build companies and teams from scratch in multiple locations, Spain, Hong Kong, Tokyo, Singapore, and Houston.
She has blended her executive background, trusted adviser experience with her passion for diversity and inclusion background to found the Diversity, Equity and Inclusion Council within the Institute of Hispanic Culture of Houston, where she serves as the Board President. Through the DEI Council, she supports corporations to improve their ESG ratings and D&I index.
2 Value Reporting Foundation. https://www.valuereportingfoundation.org/