The role of the corporation in society is an abstract, politically polarizing question that is not high on the priority list of most boards. Yet, embedded in this question are strategic and operational issues critical to long-term value creation. And these issues are attracting heightened attention from investors, consumers, and other stakeholders.
From our perspective, many of these issues fall under the broad rubric of environmental, social, and governance (ESG), from climate change impacts and worker safety to workplace diversity, executive compensation, and board composition. Given the significant opportunities and risks associated with ESG, companies that excel at identifying and incorporating these issues into their strategy enjoy a competitive advantage in the marketplace and among institutional investors. It is increasingly clear that ESG and ROI are connected.1
To help boards understand and shape the total impact of the company’s strategy and operations externally—on the environment, the company’s consumers and employees, the communities in which it operates, and other stakeholders—and internally, on the company’s performance, we offer a five-part framework: