Environmental, Social, and Governance (ESG) accounting used to be a nice to have; now, it’s become a strategic necessity. More individuals assessing sustainability as part of their decision-making process, whether employment or purchases, means companies of all sizes can’t ignore the impact they make on the world around them.
In a recent #CIBCInnovationBanking podcast episode, Andrew Waitman, CEO of Assent, explained how startup leaders can begin to craft an ESG strategy that drives business growth.
An economic argument
As more individuals “writ large” care about climate change, pollution, and a myriad of growing social issues, Waitman said ESG has a new life in the corporate boardroom.
“What I am finding in interacting with customers is they are taking it seriously,” said Waitman. “It’s not just a moral argument, it’s an economic argument.”
“It’s not just a moral argument, it’s an economic argument.”
Andrew Waitman
How companies tackle climate change and other social issues has become so important to people, said Waitman, that they have become decision-making factors informing whether to buy from, or work for, a company. And, to their credit, company leaders are taking note of this change, realizing that not caring about ESG is fast becoming a risky proposition.
“Investors care about risk,” said Waitman. “They care about financial risk, but they care about cybersecurity risk. They care about environmental risk. They do not want to see their companies being surprised by liability risks or by reputational risks impacting not only their business, but their stock price if they’re public and if they’re private, associated economics.”
ESG spans the supply chain
The solution to addressing this risk, said Waitman, is simple: measure your ESG efforts.
“We need to have metrics and means of measuring and improving not just our carbon footprint, but we need means of measuring improved social commitments,” said Waitman.
In particular, company leaders need to measure throughout their supply chain. This, said Waitman, is essential because no company operates in isolation; becoming more ESG aware within your organization necessarily means addressing potential issues with your suppliers, vendors, and service providers.
To improve their supply chain, Waitman said companies first need to understand what issues they are dealing with. In some regions, for example, it might be labour standards and practices. In others, it could be a culture of bribery or simply the lack of a standardized code of conduct for doing business.
Once you know which issues are unique to your supply chain, you can begin a three-step process to improving sustainability and responsibility in your supply chain.
- Education: Connect with your core supply chain partners to communicate your shift (or evolution) in ESG goals, ensuring they understand what that could mean for their practices.
- Environmental risks: Climate change will affect the whole world, albeit in different ways depending on the region. You need to make plans for regional possibilities with supply chain partners in those areas.
- Priortize with your partners: You need to communicate which metrics are important to your ESG goals and, if necessary, offer advice to your supply chain partners on how to properly measure those metrics.
“Nobody really wants to fire their suppliers,” said Waitman. “They want to work with their suppliers. They want to improve their suppliers. The customers get a closer relationship with their suppliers, and they find their suppliers are on this sustainability journey as much as they are.”
Disclosure starts the conversation
In the future, Waitman hopes all companies will proudly publish ESG reports in the same way they publish both financial disclosures and talk about their values. He believes that this is not just a good idea, but an economic growth opportunity. As more individuals make purchasing decisions based on sustainability values, Waitman believes companies publishing their activities will be a great way for people to “make judgments of whether the company does truly act in that way.”
“ESG is a methodology of moving towards more quantitative analysis of the various topics and risks,” said Waitman. “And so all of these topics require standards. They’re requiring the accounting firms to establish best practices. And you are going to see non-financial reporting become a legislated requirement both in Europe and North America.”