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#95: What is ESG? Basics of What You Need to Know About Environmental, Social, Governance
131 Plays2 years ago
Jill James takes the mic to explain ESG, why your company should care about it, and how you can prepare for ESG factors as a safety professional.
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Transcript
Introduction to ESG
00:00:09
Speaker
This is the Accidental Safety Pro brought to you by HSI. This episode was recorded September 16th, 2022. My name is Jill James, HSI's Chief Safety Officer.
00:00:20
Speaker
Today, my guest is me. Hope you're all okay with that today. I wanted to come here for a bit just to share some information with you on something that our industry as EHS professionals has been talking more and more about recently, and that is the topic of ESG.
00:00:44
Speaker
which stands for Environmental Social Governance.
ESG Awareness Survey Results
00:00:48
Speaker
You might have noticed for anyone out there who follows me on LinkedIn that I put out a survey a couple of weeks ago, and the question, the single question I asked was this. It was, have you been asked to provide data, reporting, or engagement on ESG, Environmental Social Governance?
00:01:10
Speaker
And 38% of you said, I've never heard of it. I don't know what it is. And the balance of you either answered yes, you have been asked, or yes, and you're learning about it in real time.
Understanding ESG Basics
00:01:26
Speaker
And even a small percentage of you 6% said, it's now part of your job title.
00:01:32
Speaker
So I thought I would come here today to try to frame up for that 38% of you who said, I've never even heard of this before. A description that I've been using recently to help kind of frame up like
00:01:48
Speaker
Gosh, how do we even talk about this? Or how do I wrap my head around what this even is? And so I'm practicing on you all today to try to describe in as most plain terms as I can think of what ESG means. And now this isn't the first time that I've explained it in this fashion. So you're not my guinea pigs in this subject. I actually tried this out on my partner.
00:02:17
Speaker
who for any of you in the EHS space who are listening ever tries to explain your job to the person with whom you may share life. Their eyes may just like suddenly go blank because they're like EHS like whatever I don't even understand what this is. I know my partner the first time I tried to explain what ROI was for months he thought I was talking about a co-worker named Roy. So
00:02:46
Speaker
Let's see if this works for you today because I tried this description with him on ESG and what it is and now it's the only thing he talks about. He's like, oh, that thing about ESG that you're doing or that you're talking about with your company and people in your profession, now he thinks he's all smart and knows a lot about my job. So if it worked for him, certainly it must work for other people. So hang tight with me here today and let's see if I can help unwind for
00:03:14
Speaker
that 38% of you who are wondering what the heck is this what the heck is this new acronym that's coming at us and so that's that's exactly what it is it's you know yet another acronym that we get to add to our quiver of already big bunch of acronyms that we use in our work right i mean we all know OSHA and things like lockout tag out and epa and um
00:03:39
Speaker
you know, SDS, all of those things. So here we have another one, ESG, Environmental Social Governments. So what is it?
Evaluating ESG Criteria
00:03:49
Speaker
Well, simply it's a set rather of self-determined criteria that's used to financially evaluate a company, to determine and manage risks, and to measure social and environmental responsibility.
00:04:08
Speaker
It's not a new term. In fact, it was actually mentioned first in 2006 in a United Nations report titled Principles for Responsible Investment. And that term has kind of snowballed ever since, and it's finding its way into our professional practice as EHS professionals.
00:04:32
Speaker
So in order to try to, you know, just kind of unwind what this is and maybe make it resonate with us on a personal level, I'm going to ask you a couple of questions that you can think about and answer on your own as you're listening today. So the first question is,
00:04:51
Speaker
Are there companies, brands or businesses where you spend your money, you support and you like them? Like you're a brand loyalist to a particular company or set of companies, whether it's, you know, a global or a national or maybe even a community based company, wherever it is that you live. So do you have one of those kind of held in your mind right now?
00:05:20
Speaker
All right. Assuming you do. Second question. It's opposite of that first one. Second question. Are there companies, brands, or businesses where you will not spend your money or support in any way? Companies that you will not even darken their door if they're a brick and mortar or spend your money ordering anything from them online at all?
00:05:49
Speaker
And that might be a question that kind of stirs up even emotion for you. If you've got a company, your company's in mind, whether it's in your own local community or on a global or national stage. All right. So thinking to those companies that you just held in your mind, the ones that you support and the ones that you don't, what's your reason for that?
00:06:16
Speaker
Think about what your reason for that is. So what are the factors that go into you deciding whether you support or don't support a particular brand or company?
00:06:29
Speaker
And so your answer in your mind might fit into a category such as something to do with their environmental impact, or perhaps their employment demographics, or the health and safety of their employees and how they practice that, or something around compensation practices, or maybe something about their community service and involvement.
00:06:58
Speaker
or board-level demographics, the way they handle data privacy or cybersecurity. I know when I first thought of these questions for myself and who I support and who I don't, that particular one on data privacy and cybersecurity came to mind for me as well, of course, as health and safety. Maybe it's ethical practices or their political support or just something I didn't simply name here.
00:07:29
Speaker
So do you have an idea in your head right now about why it is you support or don't support a particular company or brand?
00:07:40
Speaker
Okay, so keeping that in mind, I'm going to dive just a little bit more into what is E, what is S, and what is G. So E stands for environmental in this ESG acronym that we're learning about today. So what sort of things might land in that E environmental bucket?
00:08:04
Speaker
Well, it could be a company's energy usage or their water usage or their waste management, something with recycling waste or hazardous waste, their carbon footprint or their greenhouse gas emissions or their environmental incident management or their sustainability and climate change initiatives.
Components of ESG
00:08:26
Speaker
Now this litany that I just shared with you isn't inclusive of everything that lands in that E bucket, but those are examples rather. So then let's move on to S for social. What things might land in the S bucket of ESG? Well, it might be employee demographics that might be split out by gender or race and ethnicity.
00:08:54
Speaker
It could have things to do with their diversity, equity, inclusion, practices, policies. It could have a lot to do with employee health and safety, the training, the way that we do what we do as a profession in organizations. It could have to do with incident management.
00:09:18
Speaker
or community service that might be split out by volunteer time or charitable giving within an organization. And then we move on to G, the governance. So what sort of things might land in that bucket?
00:09:35
Speaker
Well, examples could be the makeup of a board or executive management, the demographics of that board that might be split out by gender, race, or ethnicity. It could have to do with the company's ethics and anti-corruption practices, harassment or discrimination training, data privacy policies and procedures, or cybersecurity controls.
00:10:05
Speaker
So those are just some examples of things that might land in that E, S, or G governance. E for environmental rather, S for social, G for governance into those three buckets. So when you think back to those companies that you support or that you definitely stay away from, and you think a little bit deeper about maybe the multiple reasons why you support or don't support a particular company or brand,
00:10:36
Speaker
Is it starting to get a little bit clearer as to what your reasoning is that might fall into one of those three buckets under ESNG or across all three of them? It could be multiple reasons, right? Okay, so let's take this just a little bit further. And assuming that you had a strong opinion as a human being, as an individual, as a consumer of a particular brand or company,
00:11:06
Speaker
Do you have an impact? Does your opinion matter? Does your opinion matter as that consumer? Well, of course it does, because you impact the sales and the brand loyalty and what people are talking about regarding that brand, right? Now let's change positions just for a second here and think about, well, what if you're the employee of one of those organizations?
00:11:32
Speaker
Do your opinions on those issues that land in ES&G matter? Well, yeah, of course they do. If you're seeking employment or thinking about changing jobs,
00:11:46
Speaker
you're going to go to an organization if you have that option and luxury that aligns with your value system. And you're going to seek out companies where you want to work that align with things that are in that E, S, and G category. Or at least you may be reading about them. You're talking with community members. You may be talking with people who already work for the organization. Or maybe people who've already left when you're reading things on
00:12:14
Speaker
on, you know, reviews like Glassdoor. So let's change hats again. What if you're a community member? What if you are a community? Maybe you are a city or a state or a nation and you're wanting to attract and bring brands, organizations, companies to your community.
00:12:40
Speaker
Are the ways that an employer operates under those ES&G categories, are they going to matter to you as a community when you're trying to attract a brand into your community? Absolutely they are, right? And then changing once again, what if you're an investor? Are you going to be interested in an employer's practices under each of those categories?
00:13:09
Speaker
Well, sure, right? Because you want something that's going to be financially secure for you if you're an investor that's going to make money for you and also aligns with your values. Same thing if you're a corporate board member, same thing. You don't want your professional reputation tarnished and you really want to align with companies who are strong, not weak in those categories of ESNG.
Impact of ESG on Reputation
00:13:38
Speaker
So then another question might be, well, are there any like scandals that have occurred because of ESNG? Essentially something that created bad press for a company or maybe something that happened that was so bad that it changed an entire business practice or maybe sent a company into bankruptcy or some other financial or legal jeopardy.
00:14:08
Speaker
Sure, there are. Sure, there are. And those are things that are a Google away for you, or you can think back about companies that maybe you're like, whatever happened to that company? What happened to them? But some that I found just searching the web. Do you remember the American Apparel brand, the maker of t-shirts?
00:14:33
Speaker
They've kind of gone away. And they had a problem with their founder and some alleged misconduct. And it really created some bad news for them.
00:14:47
Speaker
And then in 2017, remarkably 62% of ExxonMobil shareholders went against their management's recommendation by voting to require the world's largest oil and gas company to report on the impacts of climate change to its business. So that was driven from within.
00:15:13
Speaker
And there's been some, you know, in the headlines, what do we see very often that has to do with DEI or diversity, equity and inclusion? Well, gosh, nearly every day if you're paying attention, we're reading about, you know, where are all the women at board levels? You know, that's one that we see over and over again and something that people are paying attention to.
00:15:35
Speaker
So this is something that I think about, has this been happening? Have these sort of ESG things been happening that have a negative impact on a company for a long time? Well, certainly they have. This isn't anything that's new. It's just that things are being collected and being looked at more globally than they ever have before.
00:16:03
Speaker
So if a company wants to really lean into this ESG business, what would they do?
Managing ESG Risks
00:16:12
Speaker
So what are companies doing right now? So let's say an employer wants to control their risks that are specific to them because they want to insulate themselves as much as possible from one or more of those scandal type things that I was just talking about. So what could a company do?
00:16:33
Speaker
Well, they can look inward, or as I'd like to say, maybe do some strategic navel gazing, you know, like really looking inside themselves, right? And trying to figure out what are their biggest risks in each of those ES and G categories. So they might start out by asking themselves, what are our biggest risks
00:16:58
Speaker
in each of those categories, and then depending on the type of work activity they do, right? And how can they might ask themselves then, how can we manage those risks better than we're managing them today? Like incrementally, what can we do better today, tomorrow than we're doing today?
00:17:19
Speaker
and then set some goals around those, some benchmarks perhaps, like we are going to reach this point in this many months or quarters or years, depending on what it is. And then once they've decided, these are our biggest risks in each of these categories as an individual company, here's how we've decided that we can do better
00:17:46
Speaker
Here are our goals around those. The next thing that companies are doing is that they're being transparent about them, and they're telling everyone about them. And when I say telling everyone about them, that means from their consumers to their employees, to their communities, to their investors. And they're saying, you know, here's our ESG profile. Here are the risks we've identified for us, and here's our goals for the future.
00:18:16
Speaker
And then note that no two companies are going to have identified necessarily and prioritize the same type of risks. So if you think about oil and gas industry, for example, they may be heavily focused on environmental risks, whereas a tech company might be really focused on data security. So each company may lead with something else,
00:18:42
Speaker
They are likely addressing something in each or multiple things in each of the ES&G categories, but they may prioritize them differently just simply based on the type of work that they do and the type of risks that they have.
00:18:59
Speaker
So another question, since our work as EHS professionals is compliance driven often, so you might be thinking in your head, like, are there any ESG specific regulations?
ESG Regulations and Laws
00:19:14
Speaker
Like, is there a way to be ESG compliant? And the answer to that is no. There isn't a prescribed box that we check for each type of employer to say, you know, you've now arrived in terms of ESG.
00:19:29
Speaker
Now, there are definitely laws in some of those categories that I was talking about under each of the ES&G buckets, such as harassment or OSHA compliance or labor laws or pollution laws, but there is no one ESG law. It's more like an employer is saying, yes, we're going to be compliant with existing laws.
00:19:54
Speaker
And we're going to dig deeper, really evaluating our risks. And we're going to be even better. And we're going to be transparent about our goals and our direction and where we're going. Transparent with our customers, transparent with our employees, transparent with our communities and our investors. I'm hoping that's making sense with you right now.
00:20:22
Speaker
So you might be wondering, is this ESG movement ripped from the headlines? Is it something brand new? Again, as I mentioned earlier, it's really not. If we think about the drivers for this that started back in 2006 with that UN policy that I was talking about, it's just that it's been building momentum ever since.
00:20:50
Speaker
And while it's been a focus with really big name companies for quite a while, it's starting to pick up steam across all employers and across all company sizes.
Influence of Large Companies on ESG
00:21:05
Speaker
So if you think about
00:21:09
Speaker
If you think about some of those big name companies and you might even just stop this podcast right now and start Googling some big name companies you can think of and the word ESG like you might type into Google McDonald's and ESG.
00:21:28
Speaker
or Airbnb and ESG, or Coca-Cola and ESG, or Procter & Gamble and ESG. You'll find that each of these companies or any that you decide to put into Google are going to have a landing page on their websites where they're describing what their approach is to ESG, what their initiatives are.
00:21:57
Speaker
And so, yes, that is definitely beginning to be quite mainstream for big recognizable brands that you and I all know. But what about, what about some of those smaller companies, what about some companies we might consider mid market or smaller employers.
00:22:19
Speaker
Are they coming into this? Are some of the companies that maybe you work for right now, are they starting to talk about ESG?
00:22:30
Speaker
Well, if they're not now, they probably will be soon. And one of the drivers for that is that these bigger companies, like I just mentioned, like Target or Lowe's or Walmart or Disney or Home Depot, while they're doing their work on ESG and determining and assessing what their risks are, they're remembering that their risks might be some of their suppliers.
00:22:58
Speaker
And so one of your companies might be supplying one of those bigger companies because you roll up to that bigger brand. So these bigger name brand companies are insisting that their suppliers have ESG initiatives and that they share those initiatives with them.
00:23:20
Speaker
And of course, this is all about risk reduction and risk avoidance. No company wants to be tarnished or taken out by something they didn't know about or didn't have clear sight of from one of their suppliers.
00:23:36
Speaker
So gosh, is this some kind of overreach? You know, is there some kind of precedence for bigger employers asking smaller suppliers to provide information to them? Well, you and I sure know that it's not unprecedented when we think about it through our lens, through our EHS lens, right?
00:23:55
Speaker
So we think about construction managers or controlling employers, requiring subcontractors to have every employee, every subcontractor that comes onto a site or facility have an OSHA 10 or an OSHA 30-hour card.
00:24:13
Speaker
We're all familiar with that, right? Because that's a risk, a way to avoid risk. And so the controlling employer, the construction manager, often are requiring that of their subcontractors that are coming onto their facilities. Or, you know, how many of you in your work have asked
00:24:34
Speaker
subcontractors who come to your facility for any reason to provide you with their policies and their procedures around environmental health and safety or even asking them to provide proof of their insurance before you allow them to come or onto your site or even to be considered for a bid to do work at your facility.
00:24:59
Speaker
So it's really not unprecedented. So don't be surprised if you start hearing rumbles of this, if you work for a smaller organization, or maybe you're already hearing about it where you are right now. So remember, you can go ahead and just try good old Google with company names and start reading and seeing what companies are reporting on, what they're leading with, depending on the type of work activity.
ESG in Investment Choices
00:25:27
Speaker
that it is that that they do. Another thing that you might be curious to search is about investments because that's certainly another place where this ESG thing got started as well. So if you want to type into Google you know
00:25:46
Speaker
IRA and ESG, so individual retirement account, and ESG, or 401k and ESG. That'll lead you down a rabbit hole that will let you know that when you're making investments, you can actually choose to invest in companies who have met certain ESG criteria.
00:26:10
Speaker
that are transparent about what they're doing. And so you can change your portfolio to be investing in companies who are being transparent about what they're doing with ESG. So another way to look at it and learn about this for yourselves.
00:26:28
Speaker
So a question you might be thinking is, oh my gosh, is this something else that I'm gonna have to do in my job? Is this gonna become part of my job title? It might, it might. But also know that there isn't necessarily one single human being who's responsible for all of this ESG stuff. Now, in some really large corporations, that might be true, right?
00:26:59
Speaker
But if you think about like, who's the person in your facility who's responsible for cybersecurity, water usage, sexual harassment training, they're not the same person, right? So these are likely, you know, three different people just in this example. And they eventually all roll up and report to a CEO or a president or a leadership group.
00:27:23
Speaker
So that top person at your organization is going to be the person or persons who's driving the ESG initiative. And they're going to be asking their team, and you might be one of the members of that team, to help identify risks under ESG to set goals, to report in data, in order for your organization to tell your ESG story.
00:27:54
Speaker
I'm hoping that makes sense to you. So when you think about job titles that might be asked to help evaluate risks and set goals and report data in, it might be you and I. It might be EHS professionals.
00:28:09
Speaker
It might be the HR professionals who also listen to this podcast. Thank you very much HR people for being here. It might be security and risk professionals. It might be environmental managers, operations managers, maintenance managers, diversity, equity, and inclusion leaders, learning and development leaders, IT professionals, logistics people, supply chain, and even finance.
00:28:39
Speaker
So there may be a number of of you who may be part of a greater team to work on your ESG initiatives and to regularly report on your progress on those things that you've decided your company may be benchmarking. And it is very likely that the entire initiative will be driven by your leadership or your leadership team. So as you think about this,
00:29:08
Speaker
First, I hope that it's making a little more sense for the 38% of you who said, I've never heard of ESG. I don't know what that is. But if you think about, gosh, I'm being asked now, or I wonder if I should be proactive about this and even ask my leadership team, is this something our organization is working on? Because if it is, then I want a seat at that table.
00:29:33
Speaker
You may be asked to specifically provide certain types of information and data, or your leadership might come to you as the EHS professional and say, I think you need to be at this table. We're really not sure what we should be reporting on. And so they'll look to you to be that leader.
00:29:52
Speaker
to be that subject matter expert to determine, you know, what is it? What are those things that we could be benchmarking right now and setting goals for? And that's where you get to shine, right? And so you might be reporting or talking about training that you're doing and data on training that you're doing, or the way that you're managing chemicals.
00:30:13
Speaker
or providing access to your employees to SDSs, which is a pretty basic thing, but that could be part of it. The way that you're identifying hazards and abating hazards in the workplace and the ways and means that you use to identify them, and what did you identify this year versus last year or this quarter versus last quarter,
00:30:38
Speaker
or the types of injuries and illnesses or incidents that are occurring in your facility and the severity may be rating with them, or the way that you have learning paths and onboarding paths for your employees when you're bringing them into your place of employment,
00:30:56
Speaker
in ways that are going to empower them and teach them about environmental health and safety practices, but then maybe what are you doing for the lifespan of that employee and maybe developing them over time and keeping them healthy and safe along the way.
00:31:14
Speaker
So these are all things that you can be thinking about and lots of different ways to go depending on the roles and responsibilities that you have as an environmental health and safety manager. No two of us anywhere that are listening here today
00:31:35
Speaker
in our work histories have done exactly the same job. We all have different roles and responsibilities. We may have different titles. And the way that we are asked to work and operate in our organizations is going to be different. But I know that you're going to be able to come to the table to help out your organization tell your ESG story.
ESG vs Sustainability
00:31:59
Speaker
And I guess the last thing that I wanted to say about this is when you're reading about ESG right now, you may also come across the word sustainability. And that's really common as well. And I think it's what it seems to be is maybe the precursor term that employers were using before ESG became suddenly cool.
00:32:24
Speaker
And so you may, as you're googling around and reading about other, finding other companies, ESG landing pages, you may see that word sustainability as well. And employers may be leading with that. They may be calling it ESG and sustainability. They may be calling it simply sustainability, but then you'll see those topics of environmental social governance on their landing pages.
00:32:50
Speaker
I know I had a conversation with someone who will be a podcast guest with us shortly about about his company's initiatives around this and he said yeah we don't we don't call it ESG but we call it sustainability and then started telling me about all the things they've been doing for a millennia.
00:33:08
Speaker
in those three categories. I look forward to sharing that information with you and know that future podcast guests, I will be asking about what are their ESG practices so that you can hear from others like yourselves and what their organizations are doing as well.
00:33:28
Speaker
So hopefully I succeeded with you today in trying to at least take a first try at figuring out what is this environmental social governance all about. And I promise we'll continue talking about it on the podcast.
00:33:45
Speaker
So thank you again for spending your time listening today. And more importantly, thank you for your contribution toward the common good. Making sure your workers, including your temporary workers, make it home safe every day. If you aren't subscribed and want to hear past and future episodes, you can subscribe in iTunes, the Apple Podcast app, or any other podcast player you'd like. We'd love it if you could leave a rating and review us on iTunes. It really helps us connect the show with more and more health and safety professionals.
00:34:15
Speaker
like you want to know. Special thanks to Naeen Jarisey, our podcast producer. Until next time, thanks for listening.