Speaker 1: Environmental, social, and governance issues have become key business considerations. Corporate ESG policies and practices are closely watched by investors, employees, customers, government officials, and other stakeholders. This makes an effective ESG strategy increasingly important to long-term business success. ESG isn't a new phenomenon. Its roots go back to the socially responsible investing that began in the 1960s and 70s. By the mid-2000s, investors started using ESG criteria in evaluating companies after the United Nations drove three key milestones. The term ESG was popularized, a legal framework for factoring ESG information into investment decisions was outlined, and a set of six ESG investing principles was published. The ESG process was further shaped by various developments since then. But ESG initiatives and companies have been thrust into the spotlight in recent years because of increasing pressure to improve environmental sustainability and act in socially responsible ways. Here we'll go over the basics of ESG and what it means for businesses. For a deeper dive, explore our complete collection on all things ESG by clicking the link above or in the description below. An ESG program documents a company's impact on the environment and on different stakeholders, as well as its approach to corporate governance. It also assesses potential business risks and opportunities in ESG's three pillars. Each pillar focuses on various issues or factors. Environmental factors include energy consumption, water usage, greenhouse gas emissions and overall carbon footprint, waste management, air and water pollution, deforestation, biodiversity loss, and adaptation to climate change. Social factors involve a company's treatment of employees, supply chain workers, customers, community members, and other groups of people. These factors include fair pay and living wages, diversity, equity, and inclusion programs, workplace health and safety, fair treatment of customers and suppliers, responsible sourcing, oversight of supply chain partners, community engagement, charitable donations, and social advocacy. Governance involves internal management practices, policies, and controls. Governance factors include the composition of senior management and the board of directors, executive compensation, financial transparency, regulatory compliance, risk management, data privacy policies, ethical business practices, and rules on corruption, bribery, conflicts of interest, and political lobbying. ESG is closely related to two other concepts that go beyond standard profit and loss calculations, business sustainability, and corporate social responsibility, or CSR. There are clear differences among the three concepts, though. Business sustainability focuses more broadly on positioning a company for ongoing success through responsible management practices and business strategies. CSR is a general framework for taking business actions that have societal benefits. By comparison, ESG is a formalized strategy that includes measurable goals and processes for tracking, managing, and publicly reporting on them. ESG programs can contribute to business sustainability efforts and ensure there's a commitment to and accountability for responsible and ethical practices in companies. For example, an initiative could aim to create more responsible and sustainable supply chains, reduce greenhouse gas emissions, implement climate adaptation measures, or adopt a circular economy model for reusing product components and materials. These moves can pay long-term dividends, but they're also more immediate reasons for companies to invest in ESG strategies. Companies with successful ESG programs can improve their market position and brand strength compared with competitors. ESG investing has become a significant part of capital markets. Trillions of dollars in assets are being managed in the U.S. alone using ESG and sustainable investment approaches. Better financial performance. ESG initiatives can reduce energy bills, operating costs, and other expenses while potentially driving higher sales. Increased customer loyalty. Companies can more easily attract and retain customers who consider ESG in buying decisions. In a survey of IT professionals by TechTarget's Enterprise Strategy Group division, for example, 70% of the respondents said they think their company would pay more than a 5% price premium for products from IT vendors with strong ESG practices. And more sustainable and adaptable business operations. It's also easier for companies to adapt to changes in regulatory and legal requirements, plus the effects of climate change, depletion of natural resources, and other environmental issues. In addition, ESG initiatives can increase employee engagement, make it easier to hire and retain workers, reduce business risks, and improve the standing of companies in the communities where they have operations. Follow these eight steps to develop and implement an ESG strategy. First, get input from internal and external stakeholders. Consult with board members and business executives about ESG issues that are important to the business. Also, talk to employees, institutional investors, customers, suppliers, and community leaders about issues that matter to them. Second, assess the materiality of different ESG issues. Identify the issues most important to the business and stakeholders, as well as less important issues. The individual elements of the ESG strategy can then be prioritized based on the materiality assessment. Third, establish a baseline on ESG performance. Document current performance levels, policies, practices, and statistics on the ESG factors that will be addressed. This provides a starting point for evaluating ESG progress. Fourth, define measurable goals for ESG initiatives. Set objectives and performance targets for the ESG strategy. Some of these goals might include desired improvements on key performance indicators, or KPIs, while others might call for maintaining current performance levels and practices. Fifth, create a deployment roadmap. Build out a detailed implementation plan for the ESG program with project timelines, milestones, and responsibilities. Sixth, choose the reporting standards and frameworks to use. Numerous ESG reporting options are available to companies, including the SASB standards, the CDSB framework, the IFRS sustainability disclosure standards, the GRI standards, CDP, the TCFD recommendations, and others. Many businesses use more than one of them to meet different reporting and disclosure needs. Seventh, collect, analyze, and report on ESG data. Once the ESG program is operational, establish processes to collect and analyze relevant data and to prepare reports for stakeholders. Full reports typically are done on an annual basis, but internal progress updates are more frequent. And eighth, review and revise the strategy as needed. ESG requirements can change as business needs, stakeholder concerns, and regulatory mandates evolve. An ESG strategy should be reassessed regularly to make sure it's still effective and identify required updates. Oversight of ESG programs often begins at the board level or in the C-suite, with the CEO, COO, or executive committee taking the management lead. Some companies have a chief sustainability officer, a chief ESG officer, or a VP of sustainability or ESG to lead their corporate programs. Companies might also have a chief diversity officer who oversees DEI programs, generally in collaboration with the HR department. Otherwise, individual ESG initiatives in different departments are typically managed by the department heads, such as the chief financial officer, chief marketing officer, general counsel, and chief information officer. The CIO has a particularly big role to play in driving environmental sustainability efforts because of IT's high energy consumption and the proliferation of e-waste as systems and devices are replaced. The CIO must also ensure that IT systems and tools are deployed as needed to support ESG initiatives throughout the company. Various IT vendors offer software that can help businesses manage ESG initiatives. Such products typically provide features for data collection and analysis, ESG reporting, performance tracking, and other tasks. Consulting firm Forrester Research has evaluated sustainability management tools based on these product features. Support for materiality assessments, carbon footprint calculation and greenhouse gas accounting, data management functionality, performance monitoring, benchmarking, and auditing, sustainability reporting and risk disclosure, climate action strategy development tracking, and sustainability intelligence dashboards. ESG metrics are featured prominently in the reports that companies file on the status and progress of their initiatives. These KPIs also help executives manage ESG-related risks and can be used by organizations to measure themselves against the triple bottom line, the sustainability-focused management framework that treats the social and environmental impact of companies and the economic value they create as bottom line categories. Also, external ESG rating agencies use reported metrics plus other data to give companies ESG scores, a number or a letter rating that investors and other stakeholders can use in evaluating an organization. Both quantitative and qualitative ESG metrics can be tracked. Examples of quantitative metrics include greenhouse gas emissions, energy and water usage, amount of waste generated, compensation data, employee turnover rates, charitable contributions, and workforce and board diversity. Examples of qualitative metrics include labor practices, community engagement, codes of conduct, and policies on business ethics. Although studies show that most large companies have ESG programs, many ESG efforts aren't fully formed and some businesses have yet to get started. But there's mounting pressure to do so, not only from stakeholders but also from regulators. ESG reporting has mostly been voluntary. In the U.S., though, proposed SEC rules would require publicly traded companies to disclose information on climate-related risks and greenhouse gas emissions. And the EU's Corporate Sustainability Reporting Directive will eventually require about 50,000 companies to file annual reports on business risks and opportunities related to social and environmental issues and how their operations impact people As government reporting mandates increase, a comprehensive ESG and sustainability strategy can help ensure compliance and long-term business health. And maybe make your competitors green with envy.