Wake Up Wired: ESG’s Impact on Change and Success

Environmental, Social, and Governance, aka ESG, has become a dominant topic of interest across industries. 18 Coffees’ senior engagement manager Phoebe Chen sat down with PwC sustainability senior manager Ellen Shieh and Dorothea Duenow, ESG reporting lead at UL, to dig a bit deeper and discuss ESG — what it is and how it’s impacting businesses. Miss our live discussion? Check out the highlighted excerpts below.

Question 1: What does the ESG landscape look like, and how is it changing the way corporations are working?

Dorothea Duenow: Overall, our environment has changed. We are, as a planet, undergoing rapid transformations, evolution, and revolution. All businesses are recognizing that there are significant social pressures and expectations for private enterprise that’s supported by ongoing demands to take responsibility for the potential externalities that are affecting the environment and society. Whether that’s employees, more conscious consumers, or the interest of investors, people are more educated, more aware, more convicted than we’ve seen in a long time. Digitalization; decarbonization; the shift in workforce; data security; data privacy; managing the workforce; diversity, equity, and inclusion; addressing the inequalities that the pandemic has really exposed; and supply chain management — all of these are related to ESG topics.

Ellen Shieh: When we think about ESG and sustainability, the “e” comes to mind first and foremost — before the “s” and the “g” — because it’s more quantitatively calculated, something more tangible that you can really work towards. The “s” and the “g” are a little bit more nebulous because it’s not as crystalized yet, but we’re getting to a point where it’s going to be formalized. It really doesn’t matter what industry you’re in. The beauty of ESG is that it’s agnostic to whatever industry you’re in. There’s always going to be some sort of a touchpoint that is expected for you to have some sort of responsibility beyond just meeting the bottom line.

Question #2: How are you seeing the shift in regulation and market given the pandemic? 

Dorothea Duenow: When you go back to the original leaders in sustainability and what reports from the beginning looked like, the scope was much narrower. Now, we’re really understanding that managing ESG is really managing risks and opportunities. The topics covered by ESG affect nearly every function of business. Before, corporate sustainability or corporate social responsibility might have been relatively siloed within an organization. Now, we’re really seeing that all functions depend upon us and vice versa to integrate examining risk, mitigating risk, identifying opportunities — all through the lens of ESG.

There’s been a shift from — “this is potentially a value-add to your reputation or a value-add to attracting employees” — to understanding that this is imperative not just to respond to changes in regulation, but to be seen as companies who really are well-run...who are prepared for disruption in the supply chain or potential climate disasters. Although ESG was born out of that investor desire to have quantifiable and comparable data and metrics, it’s not just investors using that information any longer. People are making decisions about where they want to work based on the mission of that company, based on that company’s impacts. Consumers are making decisions on what they want to purchase and who they want to support based on this information that’s out there. It used to kind of be a niche thing — now, it’s seen as more integral to good business, good leadership, good management, and the future success of your company.

Ellen Shieh: A big thing we see as a distinguishing factor between a company that is just getting off the ground, a company that is trying to figure out what ESG means to them, and leaders in ESG is this: how integrated ESG really is to their business. Does everyone believe in climate action? Does everyone believe that what we are working towards is a bigger purpose?

As far as business integration goes, It’s not just about meeting the bottom line. It’s making sure the way you’re building your business and continuing to grow is leveraging ESG, and it’s making sure that the way that you’re governing and operating your organization is sustainable in the sense of long term thinking, not just in the sense of having good environmental and social impact. That’s why you’re seeing companies commit billions of dollars into ESG — they recognize that it’s not just, “Yeah, that’s a really awesome marketing headline,” but there’s a massive need to solve this problem.

The great thing about ESG is we’re all on the same team — I don’t know if anybody out there is a Marvel fan, but we’re all working against this big Thanos character who’s snapping us out of existence. Whatever we can do to make sure that we’re working together for a solution, that’s what the purpose of being an ESG or sustainability professional is. We’re not working against each other, we’re not trying to hide trade secrets — we're all saying, “How can we work together to transition to a low-carbon economy? How can we make sure the societies we live in are equitable, have equal opportunity, and have different avenues for people to recognize success?”

Dorothea Duenow: One of the most positive things to come out of this pandemic is the demonstration of how quickly business can change, how quickly business can evolve, and how quickly people can come together to innovate and provide new solutions. Of course there’s fear, there’s hesitancy, there’s suspicion that we’re not going to be able to make the necessary reductions to halt irreversible climate impact — some of which we’re already seeing. But I think there’s always hope in ingenuity. There’s always hope in collaboration, and we’ve certainly demonstrated how quickly systems can change, and how quickly business can evolve with the right leadership and the right tools.

Question 3: How can companies and employees think about reporting and compliance in order to be successful?

Ellen Shieh: Reporting is really the only way that you can understand what kind of an impact a company is having outside of economic impact, but that’s the result of the program work and development behind those numbers. Before looking at how you report, having your program developed is critical to having a good report. If you don’t continue to do more from where you start, your report is going to be the same year over year.

Dorothea Duenow: Reporting is a step in the journey. You really have to start with that basic materiality assessment: who you are, what you want to represent, who you want to be 10 years from now, who your stakeholders are, who’s making business happen, why are you profitable? Even as a tiny organization, you can do a lot of internal investigation and have these types of conversations. You don’t need a third party expert to begin that work — researching your industry and understanding what your peers are doing, all of that is going to help you begin to prioritize where you can have the biggest impact. It definitely begins with close investigation of your own company, your footprint, your sourcing, your data. A lot of people learn a lot when they begin that process and find lots of gaps, things they don’t know are happening.

You also want to find ways to be comparable to your peers. It’s really important for businesses to be reporting in a standardized way for that reason. If we’re not all using the same units of measurement, we’re putting too much effort on our audiences to do extra discovery work to really understand what our impact is. You’re always going to have to provide a bit of qualitative “extra,” but the pending standardization of frameworks is an overall benefit — otherwise, we can’t truly evaluate things like net zero statements without the real demonstrated data that goes along with that. Let’s get on board with how we can stack up against each other, and that will help everyone improve.

Ellen Shieh: Identify what is most meaningful from an impact standpoint to not only you as a company, but also for your stakeholders. It’s not something that you have to hire someone to do — do your work in house first, and once you get to a point where you’re ready for that next step, then invite someone in to add that third-party perspective and future out what that next step will be. That’s how to, in a very meaningful way, figure out what’s most important to the organization and eventually report on it. You’ve identified it, you’ve built initiatives, you’ve gathered data, and then you share with your audience. “This is what we’ve done in the past year. Check in again next year to see further progress we’ve made in these key areas.”