The 'Social in Environmental, Social and Governance (ESG): Where Are We?
If you google the term environmental, social and governance (ESG) you’ll find that you have a choice of more than 500 million references. The investment dollars in ESG are equally impressive. Bloomberg Professional Services predicts that ESG assets under management (AUM) may hit $53 trillion by 2025.
In just two short years, these numbers prove that as an industry, ESG is mainstream and flourishing, both in terms of subject matter experts in the field and the urgency with which corporations and nonprofits strive to succeed in these categories. For stakeholders, the prevailing idea is that the best, investment-worthy companies rank high in these categories.
All indications are that a shift in corporate culture is taking place from one focused on profit alone to a more holistic approach to doing business by respecting the planet (E), valuing employees and becoming better community contributors (S) and ensuring that diversity exists among leadership, as well as accountability and transparency (G).
We can’t understate what a dramatic shift in corporate culture this is for a country that has historically been unabashedly profit oriented.
I read an unattributable quote that perfectly encapsulates the past way of doing business, that is, if it is the past: “It turns out the public hates the culture of corporate greed. Let’s see how we can monetize that."
But the issue of authenticity shades ESG efforts in an impactful way. In particular, the diversity, equity and inclusion (DEI) component of ESG has a direct bearing on individuals, and not just in terms of keeping our shared planet healthy.
The condensed definition of DEI as provided by Michigan State University, reads as follows: “Diversity is where everyone is invited to the party. Inclusion means that everyone gets to contribute to the playlist. Equity means that everyone has the opportunity to dance/experience the music.”
When there is no representation for certain segments of society—minorities, BIPOC groups, LGBTQ+ persons, transgender persons and non-Christian religious organizations—and not everyone has a say in how the workplace is managed, and when opportunities are not available to all, the result is, well, the same issues of social injustice we’ve lived with in the corporate world and our society in general throughout our history.
Representation drives economic wealth and well-being, access to health care, decent housing, education and buying power. A cycle—good or bad—begins and lingers for generations based on representation.
And yet, according to Gartner, a technology research and consulting company, Black and Indigenous people and other people of color make up only 17 percent of the C-suite. Less than one percent of Fortune 500 CEOs publicly identify as LGBTQ. Only five percent of CEOs are women and less than 20% of corporate leadership team members are female.
Keeping ourselves honest in terms of authenticity involves a close examination of the profile of a company. When it comes to reporting on DEI, corporations have yet to present the same unambiguous clarity as the way profit itself is reported.
In June, JUST Capital, an independent nonprofit that measures corporate stakeholder performance at America’s largest public companies, released the Corporate Racial Equity Tracker (CRET) revealing that only 43 percent of companies polled reported data on pay equity. In addition, only 22 percent disclose the actual results of their pay equity analysis, i.e. pay ratios by race and ethnicity. Only seven percent disclose their promotion rate by race and ethnicity, and very few companies report providing anti-harassment training, although 98 percent of companies claim to have an anti-harassment policy.
There’s a well-known glitch with standards of measurement and lack of consistency in terms of sourcing and reporting data and the absence of industry-wide criteria.
Still, there’s every reason to believe that reporting will get better over time; a methodical process for developing corporate standards began in July 2020 when PolicyLink, FSG and JUST Capital came together to publish the CEO Blueprint for Racial Equity, a guide for businesses to address key components, including the intended and unintended impacts of products, services, operations, policies, and practices on people of color and low-income communities.
But despite all the movement in the ESG field, including DEI, it isn’t at all certain that corporate leaders agree that responsibility for a better world and a good life lies at their feet or should even be in their sphere of concern.
That kind of lukewarm devotion might account for the inadequate quality of reporting and the persistence of workplace discrimination.
In fact, some assert loudly that ESG is a phantom fix that benefits the asset management industry with only the appearance of promoting good corporate citizenship.
A recent article in the Harvard Business Review by Kenneth P. Pucker and Andrew King exposes the unspoken doubt in the validity of ESG: The headline of the article reads, “ESG Investing Isn’t Designed to Save the Planet.”
Quoting the two authors: “It’s long past time we faced a hard truth: despite a historic surge in popularity, ESG investing will not tackle our generation’s urgent environmental and social challenges when in fact only government intervention can help the planet avoid a climate catastrophe.”
In terms of which entity has the greatest influence on societal and environmental issues—the government or the corporation—there has always been a mutually rewarding relationship where both are heavyweight winners: Through lobbying and political party contributions, corporations get the regulatory breaks they equate with increased profit and politicians receive donations. That must be part of the culture shift, but it’s a huge hill to climb from the status quo.
The problem with the social aspect of relationships in corporations is not necessarily what categories to measure and how to report, but the inability to legislate solicitude. Bonnie Raitt expresses the sentiment perfectly in her mournful song, “I Can’t Make You Love Me.”
And the most significant impact of faking it when it comes to corporate relationships is that human beings—as opposed to stick figure statistics—are either victims or beneficiaries.
For example, despite today’s popular cause of pay equity, women working full time in the U.S. are still paid just 83 cents to every dollar earned by men.
As a result of lower lifetime earnings, women receive less in Social Security and pensions and go into their retirement years with greater exposure. In terms of overall retirement income, women have little more than 70 percent of what men have.
The disparity continues: In terms of equitable pay, Black workers earn lower wages relative to their credentials. An analysis by the Economic Policy Institute found that whether they have a high school diploma or an advanced degree, Black workers make about 80 percent of the earnings of a white worker with similar education.
Latinas are paid just 57 cents for every dollar paid to white, non-Hispanic men. This gap in pay amounts to a loss of $2,409 every month, $28,911 every year and $1,156,440 over a 40-year career. Latinas must work over 21 months to make as much as White, non-Hispanic men were paid in just 12.
The median wealth of Black families ($17,000)—is less than one-tenth that of White families ($171,000). Only 42 percent of Black families own their homes, compared to 73 percent of White families. Relative to every dollar of White household income, Hispanic and Black households still earn just 74 cents and 62 cents, respectively.
Beyond the direct effect corporations have on these groups is the influence companies can have on their communities, at least that’s what they claim to accomplish by embracing corporate social responsibility (CSR).
But corporations also have different ideas of what constitutes social responsibility. Is it to be proven in numbers or unmeasurable sentiment?
Underwriting the annual fish fry is fine, but creating a local jobs training program specific to the corporation’s industry would be even better. In terms of addressing the most critical societal issues, those problems we continue to commit to failure, how about underwriting the cost of training for local law enforcement to eliminate negative encounters with various races, ethnicities and vulnerable groups?
Instead, the number of Black people killed by police has increased over the last two years since the death of George Floyd. Black people, who account for 13 percent of the U.S. population, accounted for 27 percent of those killed by police in 2021, according to Mapping Police Violence, a nonprofit group that tracks police shootings.
The Anti-Defamation League, which tracks anti-Semitic behavior nationwide, recorded 2,717 incidents in 2021. That's a 34 percent rise from the year before and averages out to more than seven anti-Semitic incidents per day.
And according to the FBI’s annual data on hate crimes, race/ethnicity and ancestry continue to be the most reported motivations for hate crimes—61.8 percent, followed by sexual orientation at 20 percent.
The responsibility CEOs have to elevate their employees and communities to a higher standard of living should be weighted as heavily as if lives and livelihoods were at stake, because they are.
But this commitment involves the kind of personal introspection that we typically avoid, especially where it concerns business and ethics or our social obligations to others.
Whether or not corporations embrace the shifting norms of doing business depends on the givers and receivers embracing the model of the corporation as a benefactor without that eliciting a bad taste in the mouth of CEOs.
The kind of fortitude that acknowledges what the opposite of fairness looks like is called for. It manifests itself as intrusive government control over health and wellness, arbitrary meddling into the field of education, restrictive voting rights, the interruption in the patient/doctor relationship, racist activity, and ultimately the kind of perpetuation of bias and bigotry we’ve almost come to accept as a way of life.
I’m not naïve enough to envision a utopia where corporations become the sole foundation upon which goodwill is built, but I disagree with Pucker and Jones’ conclusion that ESG is a lost cause. I’m convinced that corporations can find the way forward to marry profit with planet and people in an equitable and affordable way.
The power of uncorrupted capitalism can be a good thing!
But I am also sure that as a society we can’t continue to struggle with the same issues of disparity and bigotry and at the same time promulgate American exceptionalism.
In the new age of corporate relationships, the efforts we make toward accomplishing genuine diversity, equity and inclusion afford us one more opportunity to get right the kind of life-balance that ensures survival and even prosperity. But there is such a thing as a last chance … this may be it.