ESG & The Stakeholder Reimagination Imperative

The idea that all stakeholders are impacted by a company’s ESG practices and implementation strategies is not new. As Environmental, Social, and Governance considerations are increasingly being demanded of the corporate community, the efforts of a company to act in a socially and environmentally sustainable way are becoming critical to its success.

It is also increasingly obvious from research that ESG efforts do not have an either/or relationship with financial performance. As a recent study from the NYU Stern Center for Sustainable Business and Rockefeller Asset Management found, ESG has a positive impact on a company’s financial performance, and that impact only holds when ESG efforts are genuine and active. Disclosures alone do not help the bottom line.

But prevailing ESG metrics fail to count as stakeholders arguably the most at-risk group if a company is not truly ESG compliant.

The Missing Stakeholders

Stakeholder engagement is critical to determine the positive impacts of ESG efforts and any unidentified gaps. Stakeholders are typically listed as being asset managers & investors, consumers, suppliers, employees, industry groups and regulators, communities, and the media as well as shareholders.

Rarely does ESG literature specifically mention “supplier/contractor employees” as stakeholders.

In reality, requiring suppliers to align with the goals and ideals of a company demands a continuous assessment of suppliers’ relationships with their own employees. In many consumer goods sectors, manufacturing takes place in lower income countries, typically in Asia, where employees are at risk of exploitation and experiencing poor working conditions.

Environmental, social, and governance responsibility is intended to produce outcomes that are socially positive within a company’s orbit. That orbit necessarily includes the rights and living conditions of supplier employees — that is, all the way down to the final links in the supply chain.

Are All Stakeholders Created Equally?

At a recent roundtable we hosted remotely, asset managers and the companies we provide research services for agreed on a few key points:

• Regular monitoring of the working and pay conditions at supplier companies was critical to full ESG compliance
• That monitoring needed to directly target the employees themselves
• Asset managers are becoming increasingly reluctant to invest in companies that failed to consider supplier employees as stakeholders
• There is no logical reason to exclude — and enormous moral reasons to include — supplier employees in the list of stakeholders; on the contrary, if ESG was to truly honor its objectives, supplier employees’ welfare and wellbeing must be taken into account

Havuta will continue to assist its clients with fuller and ongoing insights into the working and pay conditions their supplier employees face, playing a key role in ensuring full ESG compliance.

Our technology and analytic capabilities make monitoring supplier workplace working conditions and employee welfare more affordable and feasible than ever before, leaving little excuse for companies that fail to ensure ESG efforts reach the furthest regions of their spheres of influence.

With a clear financial performance benefit from doing so, expanding the understanding of who ESG stakeholders include is crucial for corporations going forward. Those which act progressively and seek to be at the forefront of social responsibility initiatives will reap the rewards.

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