CSR, ESG…the latest corporate buzz terms or a seismic shift in business culture? To be honest, a mixture of both.
Wikipedia defines ESG as “an evaluation of a firm’s collective conscientiousness for social and environmental factors.” Regardless of the jargon, issues relating to Environment, Social and Governance are affecting consumer choices, business operations, capital investment and risk management decisions throughout the economy.
Rather than a “do good” report card, ESG, at its essence, can provide strong indications of a business’ ability to recognize, adapt and thrive in an ever-changing socioeconomic landscape. Indeed, in today’s hyper-connected society, how a company rates in terms of ESG matters from both the consumer perspective as well as from the viewpoint of investors and regulators. It also brings forward vulnerabilities a skilled risk management partner can help address.
To better understand why ESG matters to today’s business owner, let’s look at each component:
Environment: An increasingly volatile climate means the impacts of unpredictable weather permeate all aspects of the economy. Internally, supply chain outcomes and the ability to effectively make, move and sell goods are increasingly impacted by weather events. Externally, consumers are demanding producers source, manufacture and distribute their products responsibly. How a business mitigates environmental risk and protects itself against interruption and property loss could very well determine its survival.
Social: Issues of equity are at the forefront of our “S.” From race to gender to human rights – even to animal welfare – companies are judged not just by what they sell, but by who they are and how they treat their customers, employees and the communities in which they operate. On a micro level, a healthy Social stance enables owners to thrive on the basis of relationships and reputation. At the macro level, positive Social ratings help avoid business interruption (protests, boycotts, vandalism, etc.), enhance recruiting and open up new markets.
Governance: More than “E” and “S,” “G” has immediate legal and financial implications. Internal operations and structures used to be left in the boardroom, but that’s no longer the case. Stock prices, employee retention, government oversight and consumer preference all hinge on how an organization is run. Issues ranging from ethics to board diversity to executive pay are routinely scrutinized by investors, talent, consumers and regulators alike.
ESG has both an inward importance (how it relates to the business operations) and an outward relevance (how it relates to consumer choice). A healthy risk management program helps businesses avoid negative ESG outcomes such as property & casualty loss, business interruption and punitive damages associated with nefarious employee behavior.
For a common sense understanding of how the concepts of ESG apply to your business, contact our team at Oakbridge. Our approach sheds light on how rigorous risk management planning and a strong insurance stance can protect your investment and optimize the cultural zeitgeist to your favor.