4 reasons why ESG is getting more and more important
As we all know, Environmental, social and governance (ESG) is
increasingly viewed as a key management theme every corporation must
pursue. Not only investors pay close attention to the sustainability
performance of the investee companies, but nowadays more and more potential employees are interested in the ethical impact of an investment in their future company.
Harvard business review introduced the top 100 CEOs in 2019 and this year they increased the share of ESG in the evaluation from 20% to 30%.
Here is why ESG share is getting bigger:
1. Nowadays CEOs are not only in charge of their internal issues but at the same level, they must take care of the interaction between environment and their business. Simply, if their operations are affecting the environment and they are not responsible for it then people and specifically the young generation may easily blacklist their business and this could be equal to losing share values and losing the entire business in a very short period of time.
2. Previously, what mattered to a CEO was the quality of product/service, well-designed marketing, and sales system and finance but now their main responsibility is creating an effective communication channel between society and the organization. The more this channel is responsive and effective the smoother the investment and operations go on!
3. Regardless the growth of artificial intelligence and robotic process management, companies' biggest asset is still human resources. All businesses around the world need skilled people to execute their strategies. Meanwhile, the values for millennials and Z generation are very different than baby boomers. Still, I remember an article on Forbes from Ashley M. Fox about "why millennials hate retirement"
I learned a lot from the article and I would like to add something extra to it. Gen Z and millennials do not care that much about being hired with big corporations for retirement and better future! Basically, retirement packages are not attractive anymore due to many reasons. One of them is the model of population and lack of workforce in advanced countries to pay for future pensioners out of their tax!
So, how can a CEO attract skilled and innovative people to drive his business?
I would say only and only by focusing on values that the new generation cares about them. These values are very well explained in ESG indices as Social indices such as diversity, inclusion, human rights and etc. Of course, these issues matter a lot for an investor since what matters for an investor is long-term solutions to lead the company to sustainability.
4. The last important part of ESG focuses on corporate governance and that is exactly what should be considered by CEOs and board members. A recent example of this, is the story of Wework and the big loss mainly due to lack of transparency, employee relations, and corporate risk management.
In these 4 steps, I tried to briefly explain how investors are evaluating companies through the ESG window and how CEOs can bring real values to companies. I am certain that now we can fully agree that the share of ESG should go higher and higher!