Companies with formal ESG policies are becoming more and more common. ESG stands for Environmental, Social & Governance and it is the business sector’s latest response to changes happening in the world. As ESG is embraced by large public companies, smaller businesses will slowly start to feel the effects. For example, if a large company (think: Amazon or Wal-Mart) commits to eliminate their carbon footprint, they will eventually have to require vendors and other partners to commit to this same goal via their own ESG policies. Or, if a large business with a local location (think: Airbus or Austal) makes a progressive diversity, equity and inclusion commitment, the talent in the younger generation workforce might be more drawn to such a company whose ideals align with their own. These represent a few reasons small business owners need to be aware of ESG and possibly consider what their policy would look like.
ESG Explained
For many years, we’ve heard about organizations declaring their commitment towards “green” or “sustainable” processes or products, but often, those assertions came without any actual change. These unsubstantiated claims are now being labelled as greenwashing – and getting this label can have a significant negative financial impact on an organization. ESG policies offer a way to quantify and evaluate how a company has advanced on their claims of being environmentally friendly, inclusive, and transparent.
Though greenwashing refers more to environmental factors, a business’s ESG policy has expanded to consider the three factors of environment, social, and governance.
Environmental
Social
Governance
In some form, ESG policies have been a consideration for over a decade and do not appear to be a simple passing fad. Take a look at this link to Wal-Mart’s policies – you’ll see the archive goes back to 2005 with a switch to calling it ESG starting in 2019. As the world continues to change, we expect to see ESG policies becoming more and more important. In fact, there are organizations developing ESG rating scales right now. In the future, this could mean that when someone Googles your business, your ESG score will show up alongside your phone number, address, location, and other information publicly available on the internet.
ESG Benefits
A primary benefit has already been covered – an ESG policy may soon be required to be able to provide services/goods to larger organizations. Two other benefits are being able to attract both customers and employees.
Millennials and younger generations entering the marketplace as consumers and as part of the workforce are champions for sustainable consumer practices. It is increasingly important to these generations to do business with companies whose values align with their own. An ESG policy is the framework that can show the alignment between a company’s values and actions.
ESG Implementation
Defining and implementing an ESG policy means business leaders have to actively address their contributions to sustain environmental and social changes in the world. The leaders of your organization will need to think of ways to reshape the company for the next 20-25 years. Changes to processes, products, structures, and workforce require an investment of both time and money. Avizo Group can help you with the financial analysis of implementing such changes, help you write a strategic plan that moves your towards ESG compliance, and even help with the measurement of your progress.
If implementing an ESG policy is not something you’re ready to do now, there are simple changes you can make to move you in the direction of ESG adoption. For instance:
- Think about the products you use in your office. If you provide customers and employees with coffee, start by ditching styrofoam/non-recycleable cups for ones you can recycle.
- As a social initiative, commit to partnering with a relevant non-profit group – a primary component Publix’s ESG policy is to donate food to Feeding America.
- For governance, enroll your entire team in cybersecurity training.
Even if you are not ready to write an entire ESG policy, we’re here to help you understand it and offer solutions you can enact that will get you moving in the right direction for ESG compliance.
Rachel G. Young, CPA, CGMA
Rachel is a Shareholder & Strategic Consultant who is also the leader of our Assurance Department. She has over 20 years of experience working side-by-side with clients in Avizo’s governmental niche.
