By Mike Biernik
A well styled, diverse group of people sitting in front of a tree is not an ESG Program. In fact, if this contrived imagery does not reflect your organization, you are at risk of being exposed to your stakeholders. With no intended malice, public relations and communications professionals, who in reality play an important role in delivering an ESG communications plan, deliver these stock images and associated non-informational narratives based on a zero risk mind set.
In the absence of an ESG focused team of professionals, with complimentary skills and a set of defined stakeholders, not enough thought will be applied to materiality. The result will be a loss in understanding of value creation, risk mitigation and performance impact that would be learned from tracking metrics for material ESG topics.
Similar to imagery, well intentioned giving programs while a part of a company’s culture, and potentially an element of an ESG program, do not deliver the stakeholder value of an ESG program.
Instead of focusing energy on responding to perceptions, why not understand key stakeholder needs. Work on providing defined stakeholders the data and metrics they need to make decisions. Ask yourself who are some of these stakeholders, and what do they need?
Investors need to understand value creation. How is a company’s performance on specific ESG topics impacting long term value creation? How is the company’s ESG performance trending? How does ESG performance contribute to the non-tangible component of stock valuation?
Creditors need to understand risk. How is a company’s ESG performance mitigating or increasing their risk profile? How does ESG performance impact return to bond holders?
The company itself needs to understand how their ESG performance is impacting their operational performance. This information can lead to decisions that improve performance.
Consumers of a company’s products and services are increasingly demanding to understand how ESG performance impacts the environment, society, and the economy.
Defining a set of material ESG topics and associated metrics combined with tracking, monitoring, explanations of any exceptions, and interpretation over time, is the appropriate way to provide a diverse stakeholder group with decision useful information.
A group of people under a tree makes for a nice image in an annual report, but delivers no tangible value to any stakeholders. A well styled table of topics and metrics, with explanations of their significance, and decision useful charts and graphs is the way to go.
Annual reports that include ESG material are under intense scrutiny and accuracy is going to be paramount. So many companies are trying so hard to look good that it borders on exaggeration. The EU have developed laws and the US SEC are looking into ESG enforcement opportunities. This is an important time to make sure we are getting it right.