Giving Compass' Take:

• Tensie Whelan explains why embedding environmental, social, and governance (ESG) concerns into business strategies is good business and identifies barriers that make it difficult for companies to make the shift. 

• What role can philanthropy play in reducing and removing barriers to ESG for companies? What partnerships can move ESG practices forward? 

• Read about the rise of ESG investments during COVID-19.

As COVID-19 kills and sickens millions of people around the world, it is also stress testing many institutions and cultural norms, among them companies and their compact with society. It's an extraordinary challenge joining many already connected deeply to the business world, from economic inequality to racial injustice to climate change.

When questioned about their role in responding to deep-rooted problems facing all of society, companies often indicate that they can't afford to invest in environmental protection, strong employee compensation, or other elements of a social issue because they must return sufficient profits to shareholders.

Based on research that I and my colleagues undertook at the Center for Sustainable Business (CSB) at New York University Stern School of Business, I contend that embedding environmental, social, and governance (ESG) concerns into business strategies is not only good for making money, but also essential to customer allegiance and protecting against the rising number of major threats to social stability, vibrancy, and inclusiveness that makes a healthy business possible in the first place.

However, scholars and finance professionals need to create a much clearer understanding of the business case for ESG (also referred to as sustainability), as we at the Center for Sustainable Business have begun to do with our Return on Sustainability Investment (ROSI) methodology. Without this insight, corporations will not scale up their investments in sustainability in the face of climate change, COVID-19, inequality, and many other perceived or real challenges to their bottom lines. And investors need more and better information to feel confident that a corporation focusing on its ESG performance can also meet its fiduciary duties.

Building a clear ESG business case for corporations and investors won't be easy. Here are some of the most pressing barriers:

  1. There is too much diversity in self-reporting.
  2. ESG ratings done by organizations outside companies lack standardization.
  3. Reporting ESG metrics does not equate to using smart ESG strategies.
  4. Non-financial ESG metrics are reported as completely divorced from financial metrics.
  5. Intangible company value isn't properly tracked.

Read the full article about ESG by Tensie Whelan at Stanford Social Innovation Review.