Obtaining Value from Environmental and Social Governance (ESG) Activities

McKinsey & Company’s June 2016 article entitled Sustaining sustainability: What institutional investors should do next on ESG was certainly thought provoking. Organizations of all sizes and configurations have been grappling with the issue of ESG for more than 20 years. However, it is clear today that we have come a long way in integrating ESG into business activities. Discussions such as those presented in McKinsey’s article and those being undertaken by individuals and organizations associated with the Principles for Responsible Investment (PRI) underscores this observation.
 
There are, however, some time tested activities to help rejuvenate, launch, or explore how ESG creates value for an organization that may be extremely relevant today for organizations and investment decision-making.

ESG Audits
A recent ESG survey completed by Obbagy Consulting overwhelmingly revealed environmental and social professionals affirm that ESG audits should look at past, current, and future programs and practices. This seems consistent with the notion that by assessing activities over a continuum of time, organizations position themselves to better identify trends related to vulnerabilities and uncertainties associated with their operations, ethnic diversity, community projects that may impact future performance. By assessing activities along a time continuum, this in turn creates value by identifying:

• Actions to avoid environmental compliance penalties.
• Business improvement efficiencies through ESG programs.
• Potential human resource issues related to overseas manufacturing, etc.

The dollars saved by avoiding vulnerabilities can be easily evaluated for value.

ESG Training
The global economy has created changes in the way organizations communicate and share information. As organizations build new partnerships, they are making incremental changes to reshape the nature and form of employee training and capacity building. ESG training, if designed and implemented appropriately, can build on past successes and best practices to help create value through innovation and efficiency. In addition, employees participate in community programs, take part in parent-teacher programs, attend church groups, or enroll in community education programs providing an informal avenue for obtaining information to improve practices and increase the return on investment and value to the organization.

Sustainability Valuations
The Sustainability Metrics Calculator is a modeling tool designed to measure the business value of sustainability activities. The calculator translates environmental and social actions into financial terms. The outputs depict the competitive effects of sustainability efforts. The data analytics establish a benchmark confirming current activities or the need to improve the management of environmental impacts and employee/social initiatives for more synergy and greater return on the investments.
 
The interpretation of the financial outputs also can lead to a more in-depth analysis of the character of the sustainability portfolio. For example: 1) Decreasing fossil fuel consumption reduces carbon emissions and impacts to the environment; or 2) Purchasing protected land as an extra component of a project creates carbon credits and contributes to climate change mitigation. In short, the tool provides concrete data to help generate additional value for an organization.