Is ESG good for your business? | Kohrman Jackson & Krantz LLP

ESG in brief

The goal of the Environmental, Social and Governance (ESG) program is simple: minimize risk, increase shareholder value and contribute to solving social problems; but do it in a way that is at the same time good for your business, society and the world around us. ESG investing, sometimes called sustainable investing, refers to the application of non-financial factors in investor decision-making processes when identifying material risks and opportunities for growth. At a high level, this approach seeks to achieve the “triple bottom line” (balancing profits, people and planet) – or simply, “doing good and doing good” by adopting business practices that address important external priorities that align (and, hopefully, encourage) sustainable ultimate growth.

While the term ESG has gained popularity as a lens through which to evaluate attractive investments, it has entered corporate boardrooms and become a tool for shareholder activism and giving voice to employee priorities. Today, ESG extends far beyond the investment industry and is accepted by stakeholders, customers, suppliers and employees as an indicator of strategic organizational sustainability. Key considerations include:


Environmental factors refer to an organization’s impact on the environment, including greenhouse gas emissions, climate change, flooding, resource efficiency, use of natural resources, organizational resilience to climate risks, and contributions to environmental sustainability.


Social factors refer to an organization’s relationship with its stakeholders and how these relationships affect the communities in which they operate. These include salary considerations, employee engagement and human capital management. The effects extend beyond the organization itself, extending to supply chain partners and construction partners who require fundamental compliance with standards of fairness and equality – whether locally or internationally, requiring strong labor standards, racial and income equality, and practices that respect fundamental social and human rights. rights.


Corporate governance refers to the organization and leadership of a company. A person considering ESG factors should look to management to determine how their motivations are aligned with stakeholder priorities, recognition of stakeholder rights, and leadership transparency and accountability, balanced with the demands of running a profitable, sustainable business.

Current views and the future of ESG

ESG considerations have evolved considerably since their beginnings in the 1960s, circulating under a number of similar names, such as corporate sustainability or corporate social responsibility. But ESG has evolved from a reactive consideration to a proactive movement. Institutional investors and banks have begun to publish comprehensive analytics and provide ratings for companies based on how they handle ESG factors, creating a mainstream focus on the practice. In recent years, this evaluative lens has emphasized the pragmatics of caring for the world at large while generating long-term sustainable shareholder returns. For example, JP Morgan Chase has targeted $2.5 trillion in investments as a necessary step toward aligning its portfolio with the Paris Climate Agreement. According to Jamie Dimon, chairman and CEO of JPMorgan Chase:

“Climate change and inequality are two of the critical issues of our time, and these new efforts will help create sustainable economic development that leads to a greener planet and critical investments in underserved communities.”

ESG support

Many support ESG considerations and their implementation in business, as they shed light on social issues and the costs of doing business. These supporters argue that it has a positive effect on society by encouraging and celebrating companies that balance profit with social goals, while condemning companies that engage in short-sighted practices with unsustainable social or environmental practices.

ESG opposition

Those opposed to ESG argue that because there is no standardized approach to calculating ESG metrics, it is impossible to assign a specific monetary value to any single factor. In addition, opponents of ESG argue that its rise has caused many hedge funds and other investment-related organizations to focus on promoting a social agenda instead of their fiduciary duty, which is to generate the highest financial returns for their investors.

Triple bottom

The truth may be somewhere in the middle. Proponents of the “triple bottom line” argue that engaging in operations that account for external influence and corporate practices is at least pragmatic. Not only does the potential of a business (or the economy in which it operates) benefit from understanding the risks of resource depletion, environmental risks and social unrest, but the actual potential to attract investment, talent and political support has significant potential to offset the costs of such long-term strategies.

Government emphasis on ESG

Regardless of whether one supports ESG or not, ESG considerations seem to be here to stay. In 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act – a law that prohibits the importation of certain products unless the importer can prove that the product was produced without forced labor or human rights violations. The SEC has also begun to emphasize ESG considerations and launched the Climate and ESG Task Force in March 2021. The Task Force’s goal is to identify ESG-related misconduct. In particular, the SEC wants to address corporate marketing strategies, also known as “green-washing,” in which a corporation presents itself as “sustainable” or “environmentally friendly” when it is not. Simply put, mere embellishment will not be a problem when ESG is presented as a component of selling ESG-focused investments to the public.

Tangible ESG-related items (aside from the SEC task force and Biden) remain important even to critics. For example:

  • Good governance is fundamental to a well-run organization, regardless of what one thinks of E and S
  • Good environmental management goes beyond carbon credits, as it helps companies reduce supply chain risk from natural disasters, etc.

How should you build a successful ESG strategy?

First, it’s important to remember that there is no one-size-fits-all strategy of any kind for any business. While strategic frameworks can be helpful in conceptualizing internal strategy, the focus, measurable results, and resources allocated to an ESG program must make sense and benefit your business.

While the degree of ESG programs can vary widely, every company can benefit from asking the right questions and creating a useful, actionable plan.

Start with an internal evaluation

If nothing else, ESG factors are about risk management. ESG factors are used to assess companies’ exposure and ability to withstand business and reputational risks. Factors to consider when considering your ESG performance include:

  • Ecological: is your company trying to reduce its carbon footprint; does your company use natural resources; Does your company do anything to conserve resources?
  • Social networks: whether your company has a strong diversity and inclusion policy or focus; do you have a policy on modern slavery, particularly in relation to the supply chain; do you have a supplier code of conduct?
  • Management: do your stakeholders have a say and is that say taken into account when making decisions; whether there is extensive board oversight; does the board consider ESG factors when voting?

How does the ESG program align with future goals?

Once you understand how your company currently addresses high-level ESG factors, consider whether implementing an ESG program is consistent with the company’s broader strategy and sustainable success.

Questions you can ask include:

What is the goal of the ESG program?

An early understanding of the company’s goals is important for setting future expectations. Do you want to be a leader in the world of sustainability or are you just interested in responsible business?

Does the company have the resources to create an ESG program?

Depending on the size of the company and the goals sought, it may be important to appoint a high-level ESG champion to ensure long-term success. Creating an ESG program and then letting it fail can harm a company’s reputation and is something to consider as the company moves forward.

What ESG risks and opportunities should be managed and disclosed?

Creating an ESG program may require disclosure of certain risks or opportunities that the company is considering in the future. Different factors can affect different groups, for example, a change in diversity and inclusion policy can affect your employees, while an increase in supply chain costs can affect stakeholders and customers.

How will our ESG strategy improve the strength and efficiency of our business?

If your company’s ESG strategy succeeds, how will it affect the bottom line? For example, will it allow you to compete for certain market segments? While it helps mitigate real risks to you or your customers? Will it attract and retain the talent you’re looking for? Again, there are no universal answers to these questions, but each company has its own individual opportunities associated with an appropriately sized, focused and tangible commitment to ESG.

Create a management plan

If you decide that implementing an ESG program will be beneficial for your company, it’s time to create your program. The company should appoint management-level employees to determine the costs and benefits of the ESG program, setting measurable results and manageable goals. In addition to an ESG committee, a company should also have board oversight to review how initiatives align with the board’s fiduciary obligations, how ESG information should be disclosed, and the management of program goals.

Create a more comprehensive list of internal efforts

With established ESG program objectives, key performance indicators and measurable metrics should be identified, including determining how data can be collected and evaluated. To determine risks, opportunities, or potential problems, business leaders should compare program goals to available industry standards to determine which factors are most important to their industry. For example, program objectives and outcomes can be compared with SASB’s materiality finder. The better data a company has, the better it can understand and assess program challenges. Importantly, the company should consider what it is already doing to meet ESG standards and what can still be achieved in the future.

Implementing your plan

Once you’ve completed your list of potential initiatives and collected data on your company’s current practices, reveal what you’ve found. Consider investor and stakeholder priorities and uncover information that investors or stakeholders will find valuable. All disclosures come with risks that must be considered, such as legal ramifications related to:

  • Laws on securities
  • Laws on consumer protection and the fight against fraud
  • Recording requirements
  • Class actions
  • Fiduciary Duty Requirements

To plan or not to plan – ESG considerations and planning for the future

Company organization, size and industry are just a few of the important factors to consider when determining which ESG goals will make sense for your company. A company can have a wide variety of options when implementing ESG goals into its business, but it is crucial to try to choose those that are in line with your business, complement it and are achievable. Program impacts can range from core operational practices to supplier requirements to investment strategies – it’s critical that they are meaningful and sustainable for your business. Regardless of your company’s future goals, it’s important to seek professional advice about your specific industry and associated risks.

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