It is widely recognized that environmental, social, and governance (ESG) issues factor into corporate performance and can no longer be seen as “soft” reputational issues to be handled by public relations or marketing. Investors are increasingly aware that poor ESG practices may pose environmental, legal, and reputation risks that can damage the company and the bottom line, and that positive ESG practices can contribute to improved company performance.
The US SIF Foundation estimates that $12 trillion, or one-fourth, of all professionally managed assets in the United States incorporated ESG factors in 2017, up 38 percent in two years. And a consortium of investors representing over $5 trillion in assets under management recently petitioned the U.S. Securities and Exchange Commission to initiate rulemaking on a framework for ESG-related disclosures for public-reporting companies.
To build on our work in ESG, strategy and the long view, a framework for boards to help guide their companies in addressing ESG issues, the Board Leadership Center interviewed directors and officers of major corporations, including Morgan Stanley, Tyson Foods, Ford Motor, Microsoft, Mars, and Whirlpool, among others.
As we heard in those interviews, even for conscientious CEOs and boards, integrating ESG into corporate strategy isn’t easy. ESG often means different things to different people. Transforming it from an ancillary issue siloed in a distant corner of the enterprise to a broad core competency requires significant, sustained effort. And there’s no single model for organizations to follow.