The alphabet soup and jargon that accompanies business trends can be confusing, and the sustainability sector is no different. There is BAT (best available techniques), CDSB (Climate Disclosure Standards Board), and EPR (extended producer responsibility). Some of these acronyms are well-defined and widely understood, but others are not. At a From Day One webinar titled, “Making Sustainability Part of Your Corporate Culture,” a panel of leaders in the field discussed just what the most encompassing of these terms, ESG (environmental, social, and governance criteria), means now–and why it’s more important than ever for corporations to show that they’re not just paying lip service. One big reason: now more than ever, employees and other stakeholders take sustainability seriously.
Moderated by Eric Roston, the sustainability editor of Bloomberg News, the panel started by defining just what ESG means to them. “It’s one of those deeply arcane acronyms to really hit the big time–a little bit like your after-school softball buddy making it to the World Series,” Roston quipped.
Each of the five participants had a slightly different take. For Sunya Norman, the VP of ESG strategy and engagement for Salesforce, ESG is about “figuring out how your business model can transform to align with the needs of the planet and society, and to thrive over the long term. How do you create value for your investors if you’re a public company, but also your employees, your customers, and your partners?”
AT&T extends that list of stakeholders to include the communities in which it exists, said Nicole Anderson, assistant VP of corporate social responsibility (CSR) for the company. “We are in the midst of figuring out how to really embed this within corporate culture. How is our long-term success inextricably linked with our communities? And we have to have thriving, healthy communities for a thriving and healthy business. They are symbiotic relationships.”
There has been a “bit of an identity crisis in this field of work,” Anderson continued. “We never named ourselves well. There is CSR and ESG and citizenship and sustainability, and sustainability on its own. It feels very much Sisyphean–we are entrepreneurs within our companies. But people are waking up to what this is. There is opportunity and it is exciting. A bit overwhelming, but exciting.”
Noel Anderson (no relation to Nicole Anderson) is chief sustainability officer at the Red Cross, an organization that is already seeing the impact of a lack of consideration for the environment through the increased number and severity of climate-related natural disasters. In his role, Anderson said the impact of climate change makes it ever clearer that Red Cross employees need to be environmentally and socially responsible throughout the organization. “For us, it is about communicating to our stakeholders and the communities we serve that this is our responsibility.”
At Organon, a pharmaceutical company focusing on women’s health, ESG is “an overarching description of how we describe our financial performance from a technical point of view, and also how we engage our stakeholders,” said Byron Austin, the company’s head of corporate responsibility and ESG management. The company has gone through a materiality assessment–how various processes and events can materially impact the company, its business and its stakeholders–and is deciding how to set priorities among the relevant critical ESG issues.
Lincoln Financial Group started working on ESG issues more than a decade ago, said Dawn Emling, the head of sustainability initiatives for the company. Its early entry stemmed from activists outside the company pushing for information. “We set up a CSR team as early as 2011, and instituted a sustainability advisory group as early as 2012,” she said. In 2014, the company set its first greenhouse-gas reduction targets and submitted them to the Carbon Disclosure Project. The CDP data allows the public and other players in the market to see specific company trends over time.
The Role of HR in Creating a Sustainability Culture
Less than a decade ago, the language around ESG and CSR was considered arcane, but Norman said now there is increasing understanding. “I don’t have to explain to the head of HR how diversity and inclusion fit into our ESG transparency,” she said. “Investors are asking questions during proxy season about this. That didn’t used to be the case. Now, when finance people go to conferences, they are talking about this. Real estate folks are talking about sustainably built environments. HR is talking about it. Everyone around the business is changing in a way that collectively moves the company towards this transformation.”
AT&T’s Anderson said she thinks the real power of ESG and CSR is on employee retention. “We did a joint study with HR looking at the employees who were engaged in CSR initiatives.” The scores on satisfaction and length of employment were better for that group, and they were much more likely to say that AT&T was a great place to work. “Those are critical, especially during the Great Resignation. The power is definitely with the employee versus the employer.”
HR is the first stop for new employees, she continued. “How are you telling our story about the purpose of the company and how does it engage that employee from day one? That’s an area that has exploded.”
Employee resource groups (ERGs) are another way to reach employees about sustainability efforts, said Norman. Salesforce has an environmental ERG that has “helped create scale around our net zero and emissions reductions goals.” The groups have also been instrumental in the diversity and inclusion areas, she added, which is the most common way that HR interacts with ESG goals. But other areas also impact culture, which in turn impacts hiring and retention.
Austin said he interacts with HR regularly reporting and collecting data, as well as brainstorming on new ways to engage the workforce. “Both departments have an interest in creating the culture and making the employee experience great. It’s a natural overlap.”
During the pandemic, Lincoln Financial was getting questions from external stakeholders on metrics for human capital development, said Emling. “What is HR doing for the development and welfare of employees? The external market was saying our key performance indicators weren’t good enough, and they wanted to know how we did versus Prudential or MetLife. It was an interesting conversation for us in the ESG space to talk that over. We are doing some great programs, but we weren’t necessarily reporting it.”
Putting Intentions into Practice
For companies seeking to implement or expand sustainability efforts, the panel members offered advice. Austin said materiality assessments are the best practice for any company. “You really understand what are the most material issues facing your business in terms of ESG. For us, in the pharmaceutical industry, it is access to medicines and health, so that is a top priority.”
Those issues of import can be broken down further. For Organon, Austin said Covid-19 highlighted issues of access to vaccines, affordability, and health equity. “Who does or does not have access to our products? Is that because of geography, socio-economic status, the built environment in which they live? We don’t have all the answers to those questions, but we believe that communities and stakeholders are sometimes the best source of those solutions. So we partner with nonprofits, with government, with academic institutions to think about how can we better deliver health for women around the world.”
Salesforce does a “materiality refresh” every couple of years to ensure stakeholders have a chance to check in, said Norman. “We reach out to customers and suppliers and investors and employees because what an activist NGO might think is most material to your business may not match up with employees’ perspective or your customers’ perspective.
Austin said a diversity of views is important to determine where there is divergence between what those stakeholders think is material. “What activists think you should be taking a stance on or prioritizing might be vastly different from what your board thinks. And the truth is somewhere in the middle,” he said.
Lincoln Financial has tagged 16 key words and departments–among them environment, facilities, procurement, diversity, inclusion, ethics–on its materiality matrix, said Emling. “What you see on materiality matrices is high risk and high impact of those words or issues, but also low impact and low risk. It’s a good snapshot of your materiality assessment.”
Finding Advice and Useful Comparisons
Companies can find a lot of help in creating those assessments and goals, said the Red Cross’s Anderson. He mentioned the Global Reporting Initiative, which has a set of standards that helped his organization get started on building out materiality topics and creating a road map for future goals.
AT&T likes to compare itself to other companies to determine best practices, which is another lens through which you can set goals, said Anderson. Most of the panel speakers acknowledged they have used outside help at one time or another, whether it be a consultant, a trade organization, or a business sustainability organization. “CSR and sustainability is often the beg, borrow, and steal team,” she said.
“It’s not just about consultants, but also partnering,” Anderson of the Red Cross replied. “People are willing to help out because we’e all on the same page in what we’re trying to achieve.”
For global companies, it’s important to remember that ESG can look very different from one country or region to the next. What it looks like in China is very different from what it looks like in Europe. “We are tracking regulation in Europe that is coming online quite fast, versus here in the U.S., where it can vary by state,” said Austin.
Government regulation does drive some ESG and sustainability activities, Emling noted. The National Association of Insurance Commissioners is one driver for Lincoln, as well as state regulators. Ratings and rankings of companies, often by investor organizations, is another driver, along with employees and clients.
Yet investors may have the most leverage of all, said Emling. “They see that companies that outperform on ESGs outperform in other areas. A company that manages these issues, measures them, and makes the information transparent has a real advantage in how they calculate the value of a company. For me, ESG disclosure has become a huge piece of our job.”
How They’re Keeping Track and Telling the Story
The collection of data, its collation, and reporting on ESG issues may sit in one department or be scattered across many. At Organon, Austin said ESG “describes everything that our company does, so we are constantly pulling data from various functions around the world. We are responsible for putting it all together in a cohesive picture, which is a challenge.”
Both Emling and AT&T’s Anderson said they put out information on ESG through internal newsletters. This may include links to media commentary or analyses that are important to the business case for sustainability. Austin said putting such information into stakeholder inboxes reinforces that it is part of an organization’s culture and keeps it top of mind. “I think 10 years ago, all of us ESG and CSR and sustainability professionals had to bang on doors to get people’s attention,” he said. “Now it’s both push and pull. People want to know more, they want to go above and beyond to contribute to our ESG goals.”
Because of the pull aspect, it’s important to spell out opportunities where employees or investors or clients can help to push the goals along faster, he said. “I think both formal and informal communication and activities is how you make it sticky and baked into the culture.”
A lot of people still think of CSR as philanthropy or volunteering in the community or giving during the annual pledge campaign, said AT&T’s Anderson. “These are all critical pieces to making this work go. But we want to show how what you are doing every day is helping us meet our goals.” For AT&T, it may be highlighting the impact of laying fiber to learning centers that bring high-speed internet to communities where it’s not accessible to everyone. Stories like that emphasize to employees that their everyday work matters to efforts at equity. “It helps it become less of this ‘other’ thing and more the purpose of our business.”
ESG is a lagging indicator of what is happening now, concluded Austin. “Folks look at the SASB or GRI standards, but they came out of a lot of consultation with the activist community that pushes issues. ESG isn’t the starting out point, and it’s not the end point.”
“What we are doing now is trying to measure and monitor impact,” said Emling. “How do we do that and how do we know those measurements are right? How do we move them along? That process of accountability and transparency can translate to the wider world.”
Lisa Jaffe is a freelance writer who lives in Seattle with her son and a very needy rescue dog named Ellie Bee. She enjoys reading, long walks on the beach, and trying to get better at ceramics.