ESG, Environmental Social Governance, is a term that is being used a lot in the corporate world today.
It’s the company’s efforts to manage its environmental, social and governance policies in a beneficial way.
Put simply, Brendan Heck, vice president of ESG at UGI Corp. said “it is synonymous with good business and corporate sustainability.”
He said companies are paying more attention to their ESG for many reasons, and often changes to address ESG issues can make a company more profitable.
However, much of the attention ESG has gotten over the last few years comes from a demand from investors, employees and customers who want to know a company is addressing such issues.
The idea has been around for decades, said Karen El-Chaar, a business professor at Cedar Crest College. She said the idea of judging a company by its social good really started gaining traction in the 1980s when people began putting pressure on companies not to do business in South Africa to protest Apartheid.
Later, in the early 1990s, the Body Shop became a dominant retailer of lotions, shampoos and soaps because of the way it advertised its sustainability efforts and outreach to disadvantaged communities.
“The Body Shop was one of those companies that were showing their products were fair trade and not impacting the rainforest,” El-Chaar said.
For example, the company would buy their Brazil nuts from the indigenous people living in the Amazon and pay them enough to grow and maintain the trees – keeping loggers from taking over and cutting down the forest.
In its catalogs the Body Shop gave detailed stories about the sourcing of the all-natural ingredients that go into their products, giving the customer a reason to buy from them.
Later in the 1990s, something called triple bottom line accounting had a company considering issues of people, planet and profit to measure the overall performance of a company.
“Let’s say a company buys scrubbers to put in its smoke stacks. They can write off that investment. The money they invest in employee wellness, like adding a gym. They can write that off,” El-Chaar said.
That often means running a company on ESG principles can save money.
“It is very important for companies because investors are looking at these factors. They’re not just looking at profit but what you’re doing for your people and what you’re doing for the planet,” she said.
A marketing point
So, companies are becoming more vocal about their ESG efforts.
PPL Corp. in Allentown, Pennsylvaniaa recently released a report on its emissions goals, saying it planned to have net-zero carbon emissions by 2050
“PPL is fully committed to driving innovation that enables us to achieve net-zero carbon emissions by 2050 and establishing a balanced, responsible and just transition for our employees’ communities and customers as we advance towards our clean energy goals,” said Vince Sorgi, president and CEO of PPL Corp. in a press release.
Air Products of Trexlertown was recently recognized for its ESG by being named to the 100 Best Corporate Citizens List, which ranks companies on the environmental, social and governance principles most important to their respective industries.
The company was quick to promote its inclusion on the list, noting it was the tenth consecutive year it has made the list.
“Sustainability and corporate responsibility is at the core of what we do,” said Seifi Ghasemi, president and CEO of Air Products in a press release about the honor. “It is part of our higher purpose and this recognition reaffirms our commitment to build a more sustainable future.”
Heck said even his position at UGI was created recently because the company realized it needed to put a stronger focus on its ESG policies.
“We’d get inquiries from investors about our non-financial data,” he said. “We decided it was a good idea to make sure we were in line with stakeholders’ expectations.”
By stakeholders, he explained, the company was considering the values of investors, employees and customers.
“The scope of what is expected of businesses is changing,” he said. “The universe of ESG is huge.”
To concentrate its efforts on areas most important to the company, UGI is reviewing its ESG policies. They are looking at focusing on staff, improving customer experience, lowering the company’s carbon footprint, diversity & inclusion, community engagement and cybersecurity, Heck said.
Board members, customers and employees are all being included in the process.
But why is ESG becoming so prominent now?
Heck said the real concentration on ESG among corporations began about three to five years ago, but it has really been in the last year or so that companies have really become vocal about their ESG efforts.
El-Chaar said the emphasis that has been put on climate change has made companies more aware of the public’s perception of their emissions and sustainability efforts.
The Black Lives Matter movement also drew attention to economic disparities among different BIPOC (Black, Indigenous, People of Color) communities and drove companies to deliver on programs to increase the diversity of their staff and of those they do business with.
The COVID-19 pandemic also brought a lot of attention to company safety.
How were companies ensuring their employees and customers were safe from the disease? Some companies did well, others did not and the public was paying attention.
Social media is one of the main reasons ESG has become so visible, Heck said.
People talk, and if a company isn’t treating its employees well word is going to spread quickly and it’s going to impact that company’s reputation.
As more stakeholders look into corporate responsibility more companies are going to step up to promote their ESG efforts, he said. “I ultimately think this is going to be the new way of doing business.”