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What is ESG? Environmental, Social, and corporate Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of a company.
Principally, it has been used regarding an investment in a company or business, as ESG criteria have become more commonly applied over the past decade to better determine future financial performance.
Put simply, while definitions continue to vary, ESG has now effectively standardised to the point where it has become the de facto way to understand the value of a business in the era of stakeholder – as opposed to shareholder – capitalism, in which the impact a business has on society and the environment needs to be in balance with its financial impact.
To do that, it is becoming accepted that Governance is the cornerstone of ESG, as without that being effective, Social and Environmental impact can be lessened.
Why does it matter to reputation? Well, it’s pretty simple: ESG and reputation are joined at the hip in influencing the value of a business. While business performance against ESG factors can be measured scientifically, reputation performance against those factors will always involve an element of art due to the nature of reputation – the beliefs and opinions held about an organisation.
Increasingly though, science is driving understanding of the role reputation plays in business performance against ESG dimensions, how best to align to those dimensions, and the severity of risk involved in doing so - and not doing so.
A common question from communicators is ‘what’s the difference between ESG and Purpose?’. To understand that, it is best to go back a few years. Corporate Social Responsibility (CSR) emerged several years ago as a new, more ethical set of drivers for business.
Over time that morphed into CR, Corporate Responsibility, as it became accepted that responsibility was about more than just social issues, environmental ones being a chief concern. In tandem, Purpose developed as a focus and a discipline for identifying one or more overarching, value-driven aspects of CR that a business would anchor itself on.
Not always well-defined, Purpose developed as both a valued driver of more ethical business and, cynics might say, a ploy for deflecting criticism of a business’s parallel, and perhaps imbalanced, focus on financial metrics.
Meanwhile, ESG has risen as a framework for business success, and while this is a subjective definition, Purpose is now an undertaking that provides a central theme across a company’s ESG ‘mix’. They should be complementary, with Purpose being the central focus of a company’s ESG-framed agenda.
As the world strives to recover from the trauma of COVID-19, ESG is often heralded as the most important factor in the future of more sustainable and successful business. For PR and communications people, that means it has the capacity to be part of anything and everything that we do. The insights that drive our work need ESG as a frame of reference, our strategy development will typically align with the transformative change it requires, and our creative ideas will need to address the reputational challenges it poses.
Corporate, B2B, B2C, B2G – ESG has a part to play in them all. And above all, evaluation of our work versus the risks and opportunities it creates will need to continue to evolve so that it becomes an effective combination of art and science.
Where is all this heading? Well, expect ESG to develop from a core consideration of corporate and financial communications to the anchor of much of what we do. The acronym may not always be in the foreground, but it will be ever-present.
And as we increase the level of rigour required to align to it and drive success against its demands, expect the value of earned communications in the media mix to become more tangible and more respected, with more need for creativity and ingenuity in how we achieve it.
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This is part of our Beginner's Guide to public relations