In 1970, Nobel Prize laureate Milton Friedman, an American economist and statistician, introduced the “Friedman doctrine”- the theory that the only responsibility of business is to increase profits. He argued that for-profit corporations cannot have responsibilities – only people can – and any effort by employees to support social efforts is counter to the interest of their employers – the owners of the corporations.
While CSR (Corporate Social Responsibility) practices have been in leading companies for decades, they did little to disprove Friedman’s shareholder-only perspective. While CSR recognized that businesses have a responsibility “to do good”, the focus was internal on processes, culture, and self-regulation, and unfortunately, the resulting impacts were minimal, hard to measure, and difficult to convey.
Conversely, ESG (Environmental, Social, and Governance) is an approach that aims to positively impact a company’s social and environmental footprint with a more external focus. Already corporate adoption of ESG is proving Friedman’s doctrine wrong. Corporations taking on socially responsible causes are proving that ESG can be a winning proposition for all stakeholders from corporate shareholders to their employees, suppliers, partners, and customers to their neighbors and environment around the globe.
Why does ESG matter now?
The recent post-COVID attention to social and environmental issues by the current administration, regulators, customers, and employees is giving ESG the teeth needed to bring about real change. Through measurable and standardized ESG metrics, corporations now have the ability to share their positive social and environmental impacts publicly, and it’s in their best interests to do so.
The possible business benefits of proven ESG performance include:
- Revenue growth – open new markets and expansion in existing ones
- Cost reductions – lower energy consumption and reduced regulatory and/or legal interventions
- Talent benefits – increased employee motivation, improved talent retention and best talent attraction – all critical in today’s tight labor market
- Increased opportunities – for investment and partnership
When IBM asked their customers last year if the pandemic had affected their view on sustainability and climate change they found that nine out of ten customers confirmed that it had this effect. Increasingly customers are becoming more informed and taking ESG factors into consideration during their purchasing decisions.
A strong ESG strategy can be a key way to improve employee experience and retention, increase employee loyalty and productivity, and also attract the best new talent in today’s ultra-tight job market. For job-seekers deciding between two options with similar remuneration packages, a company’s ESG position can now be a key decision factor.
Many investors and potential partners are now basing decisions on a company’s ESG strategy and performance. University finance courses now feature modules on how to evaluate if a company is worthy of investment based on its ESG plans.
Companies that operate inside the B2B environment are finding that their ESG strategy has become a key part of the selection process. Today the inability to demonstrate a strong ESG position can put your selection in jeopardy as corporations are increasingly being held accountable for ESG risks in their supply chains.
While a strong ESG proposition promises these wide-ranging corporate benefits, they can only be realized with superior ESG execution. The ‘G’ in ESG is often overlooked but critical to ESG success. Without good governance, reputation risks increase and ESG initiatives fail to achieve their full potential. Good governance provides adequate oversight to mitigate the reputation risks associated with ESG while enabling all the possible benefits of a strong ESG program.
For over twenty years, Neo Group sourcing and governance advisory services have been supporting our clients to achieve incredible outcomes. We understand what it takes to go beyond advice to outcomes. We can help you build and support your ESG supplier and supply chain journey.
Get in touch with me directly here to learn how Neo Group can help enable your incredible ESG outcomes.
