The era that work was just work, and business just business, seems long gone. The 2023 Edelman Trust Barometer shows how the societal role of companies is growing year over year. While society as a whole is veering towards distrust - fueled by skepticism towards government and media - the expectations of business to lead and carry economic, societal, and even geopolitical responsibilities are soaring.
A culture of care
Care is the new currency. Even amidst economic instability, societal and environmental accountability continue to drive stakeholder investment in business. Seventy percent of workers want their jobs to have a societal impact in some form or shape, while eighty percent of stakeholders invest based on values and beliefs. Employees want to work for companies that take a stand on issues they personally care about, like climate change (63%), racial justice (66%), and human rights (71%). Investors recognize that disregarding sustainability risks affects business. According to the Forum for Sustainable and Responsible Investment, investors with over $8 trillion in US assets have already embraced sustainable investment strategies, effectively placing ‘ESG’ on the boardroom agenda. The mitigation of conflict risks (geopolitical), climate change, and sustainable natural resources are each grabbing up to 15 percent of the investors assets.
Top priorities for all stakeholders
The acronym ESG encompasses environmental (E), social (S), and governance (G) business operations. Research shows that corporations with a board of directors prioritizing ESG and considering ESG-related risks around the top table are not only more alluring to investors but also achieve better results than those stuck in a wait-and-see approach towards ESG challenges. Aside from the obvious mitigation of future business risks, a proactive ESG focus is likely to improve brand and company reputation, increase the attraction and retention of talented employees, and enhance shareholder satisfaction. Respondents of the Global Risks Perception Survey by the World Economic Forum were more worried about societal and environmental risks in the next five years than economic or technological challenges. For the coming decade, the environment was the number one concern.
The ESG journey
Although attention to ESG-related challenges has become mainstream, a substantial number of companies have only just started their ESG journey. For the board, it is imperative to understand where a corporation is on its ESG path. Has the board of directors defined its governance structure in regard to ESG matters? Is ESG embedded in the business strategy, or is it a program running in parallel? Are sustainability efforts aligned with current and future (inter)national standards? Currently, some of the leading global standard frameworks for ESG include the Sustainability Accounting Standards Board (SASB), the Climate Disclosure Standards Board (CDSB), the Task Force on Climate-Related Financial Disclosure (TCFD), the Greenhouse Gas (GHG) Protocol, and the Global Reporting Initiative (GRI).
As more and more people are turning to companies to lead in trust, the role of business in society is shifting. Corporations and leaders are expected to take a stance on societal challenges, including climate change and inequality. Company values, business practices, and decision-making need to reflect those statements. In the boardroom, this means ESG is permeating business strategies, and directors have to bring insight and foresight to the table.
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