Lately, ESG is mostly in the news for the wrong reasons.
Reading certain articles, it can seem as though some companies are happy to reap the benefits of seeming good, while shifting expenses (e.g., pollution) onto society. However, a lot of the negative coverage references ESG in its role as a guidance for investors (i.e., ESG for Assurance), despite the fact that ESG has evolved into an “organisational moral compass and set of principles.” Another facet of ESG – ESG for Impact, is more relevant to solving today’s greatest social challenges.
This is the realm of corporate social investors (CSIs[1]). One can think of CSIs as pioneers working to move away from a risk perspective ESG towards real social change ESG. We at EVPA consider that their strategic contributions to the ESG strategy of their related company can facilitate real progress on the SDGs. Results from our recent study provide evidence in this regard.
Contributing to the S of the ESG
CSIs have different degrees of contribution to the ‘S’ of the ESG strategy of their related corporate, classified as ‘passive’ or ‘active’, depending on how they engage in the process. Passive contributors readily respond to the request of the business for information on their activity and are willing to be featured in non-financial reports, but do not seek to contribute to the ESG strategy of the company. However, by their very existence, all CSIs contribute to the company’s narrative around the external component of ‘S’ (i.e., community) and their inclusion in corporates’ reports strengthens this narrative.
Conversely, active contributors – which can be further subdivided into two categories, ‘limited’ or ‘engaged’, based on the role CSIs play in the development and implementation of the ESG strategy – are best positioned to have a deeper and more diverse contribution to the ESG strategy.
Whether CSIs’ contribution to the ESG strategy development process is limited[2] or engaged[3] , CSIs are able to use their unique position and expertise to contribute to the internal (employees[4]) and the external (community[5]) components of the ‘S’ (see Figure 1). These contributions can boost employee satisfaction and allow the business to tap into CSIs’ expertise on social impact.
Figure 2. Range of CSI Contributions
Empowering meaningful CSI contribution
Recent interviews with CSIs showed that those in the active contributor category influence the development and implementation of the ESG strategy. However, businesses often hold the key to empowering CSI input. The business needs to be ready to move from a compliance lens to an impact lens, and true believer senior managers have to back the CSI in the process.
In addition to these prerequisites, CSIs willing to contribute face key challenges. These include getting clarity over CSI roles versus business functions that operate in the same areas[6] and maintaining impact integrity in the process. And, since buy-in is a prerequisite, the senior management of the business needs to play a pivotal role.
There are also several enablers that facilitate CSI contribution: mission coherence with company purpose, a favourable governance structure (e.g., including board members from the company), being part of the ESG strategy development process (in any capacity), and sharing Impact management and measurement frameworks and KPIs.
The way forward
As more and more businesses are defining their purpose and looking to have a positive effect on society, CSIs’ active contribution to the ‘S’ of the ESG may represent an untapped opportunity for companies to develop their impact journey. True progress towards the SDGs is possible, if the prerequisites are met, enablers are present, and the integrity of the social mission of the CSI is not compromised in the process.
CSIs can play in the world of ESG and still drive real impact; we’ve seen it first-hand during our interviews with practitioners[7]. It is important to note that, however, EVPA is not advocating for, nor against contribution. An active role in the ESG strategy development represents an opportunity for both the company and the CSI., However, it comes with risks to the CSI’s impact integrity, and averting this risk is not the sole duty of the CSI. In tapping this opportunity, the business must also ensure that the mission of the CSI is not diluted, and that close connections do not further blur the lines between the for-profit and the non-profit entity.
[1] Corporate foundations, impact funds, accelerators or social businesses.
[2] In the case of limited contribution, the path is laid out by the company. However, through their activities, CSIs bring contributions to the implementation of the ESG strategy. In addition, information on their impact is integrated in the company’s non-financial reports across different strategic pillars.
[3] Engaged contributors are in the position to have input in and even shape the strategy, to contribute to strategic pillars and even co-develop/share KPIs with the related business.
[4] Workforce health and safety, diversity, and training. (Matos, 2020)
[5] Community relations and charitable activities. (Matos, 2020)
[6] Specifically, in contributing to internal aspects of the ‘S’.
[7] Upcoming case studies will provide more in-depth detail about how CSIs contribute concretely and the mutual benefits this brings for CSIs and the related corporate partner.
