Environmental, social, and governance policies have come under heavy fire recently, with some large investors distancing themselves from the concept. But in practice, ESG principles can give companies, especially smaller ones, an edge over competitors as they seek to acquire and retain customers.
ESG has taken on a stigma in the corporate world. Some see it as a way for large corporations to get tax breaks or adopt policies that benefit a particular cause to the detriment of others.
For smaller companies, ESG is a brand builder when implemented correctly. If, for example, there are five companies competing in the same industry within a geographic area, some customers, especially millennials and Gen Z-ers, are going to view social responsibility, not price or value, as the most important differentiator.
For younger consumers, ideals and ethics are top of mind. Gen Z, representing those born from 1995 to 2010, put corporate social responsibility (CSR), an umbrella term that includes ESG, at the heart of what they believe.
Being socially responsible isn’t just for show. That’s why authenticity matters. Younger people can sniff out disingenuousness in empty slogans, as many tend to do research on businesses where they regularly spend money. That means a business will need to walk the talk when it embraces ESG policies.
The “S” in ESG is the most public component — and it works for business because “social “ means doing good for the communities a business serves.
That may involve sponsoring kids’ sports teams or having employees volunteer at local food pantries. Contributing to the community is a way for a small business to help people and to establish a caring and reliable brand.
A small business owner should know that adopting an ESG policy doesn’t have to be a big spend. By providing fair wages, benefits and paid time off — including volunteer days — a company shows it cares about its employees. Likewise, businesses can offer workers training and other development that help them grow and be better employees and citizens.
Recent media reports notwithstanding, ESG policies needn’t be controversial. A dog-daycare center might work with a local high school to offer internships so students can learn what it’s like to run a business or work with animals. That’s an ESG policy that creates lasting memories and can influence the course of someone’s life.
A business could also donate employee hours to a local shelter for unhoused people. It’s good business because it shows the community that the owners care about others. It also helps the employees understand the impact they can make by helping others.
On the environmental side of ESG, follow best practices by recycling as much as possible, using renewable energy if it’s available in your area and restricting water usage. There are attractive programs for small-business owners who want to be more energy-efficient, and there are also federal and state energy-efficiency grants that help businesses save money and protect the environment too.
Many states and municipalities have banned single-use plastic bags. Providing reusable bags to customers is another way of helping the environment and the community. Recycling paper and plastic, and conserving water and energy are also good practices for business and for the environment. This is also a great way for business owners to promote their business with branded re-useable bags while helping the environment.
As for governance, be sure your compliance function is covered – it’s surprising how often small businesses run afoul of local laws. Reputations can be destroyed quickly after being built up over years.
Transparency is the process of being open about the way a business runs. That might involve telling staff and customers the names of suppliers and highlighting their ESG policies. Some businesses even use open book accounting, in which employees gain access to key financial information, helping to build trust.
Equity is defined as fairness for all people involved in a business. That means ensuring processes and programs — hiring and promotions, for example — are impartial, leading to potential equal outcomes for all individuals.
An ESG-related policy is also a way for a company to lead the way on new practices. We’re learning more each day about how the environment is changing. A business can be the leader in a new technology or process to promote change in the community.
ESG policies can also help save money. By investing in your people you help to minimize turnover, by identifying “green" policies you are helping to save money in the long term. It is an investment in the future of your business.
If a business espouses the ESG principles that are important to it, and goes about it in an authentic way, the returns can be outsized. Remember that ESG isn’t a marketing tactic — it’s a responsible way of doing business.
Steven Garibell is vice president of diverse business at TD Bank.
Views expressed in The Advocate’s opinion articles are those of the writers and do not necessarily represent the views of The Advocate or our parent company, equalpride.