Corporates need to help combat racism: The ‘S’ of ESG
In the wake of George Floyd’s death we saw worldwide protests demanding systemic change against racism. Corporations need to recognize that their current efforts around diversity and inclusion programs are falling short of what is needed today. To be clear, this is an ESG problem. If your company wasn’t paying attention to ESG before 2020, from coronavirus to widespread protests, it is clearer than ever before: Companies must be prepared to disclose and improve on their E, S and G issues.
We are already seeing immediate responses to the protests in terms of what investors demand from companies.
For example Calvert, a US based investor with over $19Bn AUM, has announced that:
“Calvert will call on companies to provide the information required to accurately assess their racial diversity. Although companies are not required by law or regulation to disclose publicly the racial makeup of their board and management, they generally have this information to the extent employees have self-identified, and should make this public so investors and everyone knows where they stand on diversity.”
What are some other tangible ways this has taken shape for companies?
Let’s take PlayStation’s planned launch of the PS5, originally scheduled to go live on June 4th. This launch was postponed to allow more important voices to be heard. Below is the company’s statement / reaction to the George Floyd protests:
Meanwhile if a company was not sufficiently cognizant of the shifting social landscape, we have seen significant negative responses. Taking another example, Facebook saw a stream of public resignations after Mark Zuckerberg’s controversial decision to allow inflammatory posts urging violence to stay on the social networking site.
To understand more around the corporate response in the last week, JUST Capital has prepared a list which highlights some of the actions being taken:
- Bank of America announces a $1 billion, four-year commitment to strengthen economic opportunities in communities of color.
- Intel, has pledged $1 million to multiple anti-racism and social justice organizations and is working to implement a global inclusion index open standard.
- GM CEO Mary Barra is creating — effective at the end of this quarter — an Inclusion Advisory Board to work on increasing diversity and inclusion at the company.
- Verizon is committing $10 million to aid organizations dedicated to equality and social justice, including the National Urban League, National Action Network, the Rainbow Push Coalition, and more.
- Cisco is committing $5 million to multiple civil rights organizations, including the Equal Justice Initiative, Color of Change, NAACP, and more.
- PwC is creating a D&I Staff Advisory Council and will begin this summer releasing a new diversity plan and regular updates, among other actions.
Top stories
Why Boards Should Consider Embedding ESG Into Corporate Strategy Post Pandemic
The pandemic has forced boards to “view ESG issues in a new way” as it pertains to risk oversight, ranging from human capital issues to the impact on environmental initiatives, such as reducing a company’s carbon footprint. Investors have shown particular interest in ESG over the past couple of years, and it has only intensified amid the pandemic. In the first four months of this year, investors poured about $12.2 billion into ESG funds, the Wall Street Journal cited and reported. The Journal noted that the amount this year is more than double the amount that ESG funds attracted during the same period last year.
Nasdaq.
Overcoming Implementation Challenges at Small- and Mid-Size Companies
Less than one-third of small- and mid-size companies provide ESG/CSR reports. While the crisis will cause some companies to put ESG on the back burner, others view the pandemic as increasing the importance and urgency of corporate sustainability and the need for more effective public disclosures going forward. Kuni Chen, an ESG Consultant, explains how he supported a $500 million market capitalization company with it’s first ESG report in the company’s 75 year history after being “ motivated to start tracking ESG metrics following recent engagements with ESG rating firms.”
SASB.
Sustainability and Innovation: Two sides of the same coin
Environmental and social issues are areas in which businesses have traditionally not engaged as much as they should have; they lack the experience, knowledge and skills to deal with these issues, which are going to come at them very quickly. There’s considerable scope for disruption there. Companies can gain competitive advantage by looking at ESG as an opportunity. They can build a strong position and make it difficult for their competitors to imitate them.
Interview with London Business School Professor: Ioannis Ioannou.
Paper Highlight of the Week:
The Effect of Firm-level ESG Practices on Macroeconomic Performance
University of Oxford, Oxford Sustainable Finance Programme
This paper investigates if the adoption of firm-level environmental, social and governance (ESG) practices affects national macroeconomic performance looking at data between the years of 2002–2017. It also looks at whether this differs between developed countries and emerging economies.
The findings are that an increase of micro-ESG performance can result in the improvement of living standards as measured by GDP per capita. The paper also finds that firm-level social performance in a country is positively associated with GDP per capita in both developed countries and emerging economies. Looking at firm-level environmental and governance performance, the paper finds that these affect macroeconomic performance in emerging economies, but that the effects remain insignificant in developed countries.
While further research is needed, these results may be of particular interest to policymakers and central banks, as they suggest that encouraging the adoption of ESG practices at the firm-level could support macroeconomic performance.
Example:
A one-unit increase in firms’ average E, S, and G scores at the country-level is associated with 0.06%, 0.10%, and 0.19% increases in the log of GDP per capita, respectively. If Indonesian firms (with a mean firm environment score of 43.5) were to raise their environmental performance to the level of the highest performers in the dataset, those of France (71.8), other things being equal, this would be associated with a 15% increase in GDP per capita, from just under US$4,300 to just over US$4,900.
Other relevant papers:
- Sustainability in the Time of Uncertainty: By Ola Mahmoud, University of California, Berkeley and Julia Meyer, University of Zurich. Read the paper.
- [In German] The Company Sustainability Assessment: A critical look at SMEs: By Dr Isabelle Schluep. Read the paper.
