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From: Forbes By Edward Segal, Contributor

Environmental, social, and governance (ESG) issues have and will continue to create crisis situations for business leaders and their organizations. But a new international survey found corporate executives think their companies are falling short in meeting their goals, objectives or commitments on these issues.

Although an overwhelming majority of respondents in the survey (81%) said their company has a formal ESG program in place, they did not express a high level of confidence their organization were following through as measured against their own standards.

  • 50% believe their company performs very effectively against environmental matrix
  • Only 39% rate their company’s performance in meeting  governance goals as very effective.
  • Only 37% rate their company’s performance on social issues as very effective.

The failure of the surveyed companies to meet all of their ESG goals is a wake-up call for business leaders. This would be as good a time as any for all organizations to conduct a reality check on their progress on these important and urgent issues.

If your organization is missing the mark, do what you can as soon as you can to make up for lost ground as quickly as possible. Otherwise, your company could be at risk — or could create a crisis in—those ESG-related areas.

The survey was conducted in December, 2020 by OnePoll for NAVEX Global, a risk and compliance management software and services company. The survey results included responses from 1,250 management and senior level executives in the U.S., U.K., France, and Germany who worked at companies with 500 or more employees.

Better Stakeholder Engagement Needed

Dr. Brian Ballou is a professor of accountancy and co-founder of the William Isaac & Michael Oxley Center for Business Leadership at Miami University. He said those charged with governance “need better stakeholder engagement with millennials (and Gen Zs) to understand the value-enhancing benefits associated with emphasizing ESG and linking it to corporate strategy. 

“Indeed, in the United States, the Biden administration has emphasized environmental and human capital issues as primary agenda items. [This will] likely will lead to tax and other incentives available to foster investments in these areas,” he said.

Spending On The Rise

The good news is that ESG spending appears to be increasing. Sixty-four percent of respondents said their companies increased their spending on ESG in 2020; 63% said their companies planned to increase that spending this year.

“ESG has continued to grow in importance, with multiple stakeholders exerting pressure on organizations to address issues related to corporate, environmental and social responsibility,” said Bob Conlin, NAVEX Global CEO. “While global standards and regulations are still nascent, businesses aren’t waiting. They recognize that prioritizing ESG is an investment in competitiveness and future success.”

While investor demand has elevated ESG interest and practices among publicly-traded companies, the survey found this focus extends to privately-held companies.

  • 88% of publicly-traded companies have ESG initiatives in place.
  • 79% of venture and private equity-backed companies and 67% of privately-owned companies have such initiatives.

Europe Is Ahead Of U.S.

NAVEX said the survey shows the U.S. lags behind European countries when it comes to ESG initiatives and formal program implementation.

  • A high proportion of respondents from France (86%) and Germany (86%) indicated they worked for companies that have formal ESG reporting processes in place.
  • The U.K. wasn’t far behind with 82%.
  • Only 74% of U.S. respondents indicated the same.

Increased Importance

“ESG has continued to grow in importance, with multiple stakeholders exerting pressure on organizations to address issues related to corporate, environmental and social responsibility,” said Bob Conlin, NAVEX Global CEO. “While global standards and regulations are still nascent, businesses aren’t waiting. They recognize that prioritizing ESG is an investment in competitiveness and future success.”

Edson Severnin is an associate professor of economics and public policy at Carnegie Mellon University’s Heinz College. He said said the survey results, “…point to a shift in attitude towards environmental responsibility, even though concrete changes in business practices seem to still be lagging behind. Perhaps the next phase [for companies] will be taking effective action or put their money where their mouth is, so to speak.”

He found it surprising that, “…social issues are not as important as environmental issues, since we appear to be having a new moment of reckoning about racial/social injustice with dramatic political consequences.”

The Tone At The Top

One reason employees might think ESG is not emphasized as much by their companies in the U.S. could be the tone that is set at the top of their organizations, according to Miami University’s Ballou.

He noted that in a 2019 PricewaterhouseCoopers Corporate Board Surveys, 56% of the board member respondents assessed investor focus on ESG as excessive. In the firm’s 2020 survey, 41% of the respondents thought ESG-related issues should be a priority for strategy, but only 38% believed that ESG had a financial impact on performance.

Blurred Lines

It should not matter to a company where a particular matter falls within the ESG framework. The important thing is to understand and address the issue.

In his 2021 letter to CEOs, BlackRock chairman Larry Fink said, “Questions of racial justice, economic inequality or community engagement are often classed as an ‘S’ issue in ESG conversations. But it is misguided to draw such stark lines between these categories.

“For example, climate change is already having a disproportionate impact on low-income communities around the world—is that an E or an S issue? What matters is less the category we place these questions in, but the information we have to understand them and how they interact with each other. Improved data and disclosures will help us better understand the deep interdependence between environmental and social issues.”

Article Link: https://www.forbes.com/sites/edwardsegal/2021/02/10/survey-business-leaders-say-their-companies-are-falling-short-in-meeting-environmental-social-and-governance-goals/?sh=3984132862f5