There is a growing trend for organizations to invest in and promote positive social movements.
Enter ESG (environmental, social, and governance) management. Organizations receive good ESG ratings for having a positive effect on society. This includes reducing their carbon footprint, having an ethical supply chain, supporting LGBT communities, and encouraging diversity both in the workforce and the boardroom.
Organizations with positive ESG ratings also typically have greater transparency and good governance programs.
You might think that investment in ESG would compromise an organization’s ability to make a profit, but the opposite could be true.
In a recent open letter, BlackRock CEO Larry Fink argued that principled investing is the best route to obtaining long-term rewards from businesses.
The theory is that, as society becomes increasingly environmentally and socially conscious, organizations that can demonstrate ethical practices will gain a competitive advantage.
These rewards aren’t often highlighted during traditional financial reviews, but organizations that prioritize ESG have greater tools to reap the benefits.
The value of ESG
ESG is often more highly valued among younger investors, but its influence can be seen across all sectors.
According to Moody’s investor service, inflows into ESG products rose 140% in 2020, and the Global Sustainable Investment Alliance found that sustainable investment across the global investment industry increased by 15% between 2019 and 2020 to reach $35 trillion assets under management.
Organizations that incorporate ESG principles into their management are often more profitable.
Fink argues that organizations should care about long-term viability. Recent performance seems to vindicate this argument. Many ESG indexes and index funds have recently outperformed broad indexes, like the Russell 1000 or S&P 500.
Bloomberg, S&P Dow Jones Indices, JUST Capital, MSCI, and Refinitiv are examples of ESG research companies. They generally create scorecards based on a 100-point scale: The higher the score, the better an organization performs in fulfilling ESG criteria.
Legislating ESG
It’s not only investors who are encouraging ESG. Governments are also encouraging the trend with recent regulations.
In the EU, organizations are required under the Sustainable Finance Disclosure Regulation to disclose how and to what extent their activities are associated with environmentally sustainable economic activities.
In the U.S., the SEC (Securities and Exchange Commission) has prioritized disclosure of climate-related risks. Organizations are also being incentivized to address ESG through the UN Sustainable Development Goals and the SASB (Sustainability Accounting Standards Board).
Building an ESG program
Organizations aren’t on their own when it comes to building an ESG program. The ISO 26000 standard provides a framework for building a socially responsible business.
ISO 26000 contains guidance on:
- Organizational governance
- Human rights
- Labor practices
- Environment
- Fair operating practices
- Consumer issues
- Community involvement
The Standard is designed to help organizations address risks in each of these areas while respecting cultural, societal, environmental, and legal differences.
At its core, ISO 26000 understands the need to balance these risks while ensuring that organizations remain operational and profitable. It therefore emphasizes performance results and improvement, taking into account customers’ and other stakeholders’ satisfaction with the organization’s practices.
ISO 26000 isn’t the only standard that addresses these risks. You can, for example, find guidance on environmental issues in ISO 50001 or operating practices with ISO 37001.
Meanwhile, consumer issues will typically cover data protection and data privacy, which are addressed in ISO 27001 and ISO 27701.
However, ISO 26000 provides an encompassing framework to help organizations manage ESG across all parts of the business.
This is an essential starting point for organizations looking to certify to the likes of ISO 14001 and ISO 37001.
Indeed, one of the benefits of ISO certification is that it is designed to fit together like Lego. If you are certified under the ISO 9001 certification for quality control, you will be familiar with the process in ISO 27001 for information security.
One thing all ISO standards have in common is their ability to help organizations achieve greater profits by managing the processes.
