Business

Keeping ESG factors at the heart of companies’ concerns

(Photo: Appolinary Kalashnikova for Unsplash)

GUEST BLOG. It is with great enthusiasm and a little excitement that I offer you this first text of my blog on postmen Environmental and Social as well as those related to Governance, also known by the acronym ESG factors.

When I first brought up the subject of ESG factors in front of my group of students at UQAM, many thought that they meant the staff responsible for delivering internal mail at the School of Management Sciences (ESG) from their university… Fortunately, the use of this term is now more widespread and causes less confusion.

On the lookout for new trends in governance and particularly with regard to ESG factors for nearly fifteen years, I will try to highlight the issues of introducing these factors into the governance of an organization and the transformation they cause. progressively in its vision, its culture and the execution of its strategies. Based on the analysis of management circulars and sustainable development reports of nearly a hundred Quebec and Canadian companies, I will try to illustrate my remarks with examples drawn from my research, my teaching and my observations.

Finally, I will listen to your comments and suggestions so that this blog takes off and lives up to your expectations.

A brief history of ESG factors

The evaluation of an organization’s performance by institutional investors, shareholders and society as a whole has always raised the links between money and ethics. Without going into the history of our way of evaluating the performance of organizations, let us mention that until the early 1970s, companies were generally concerned only with their economic performance. The satisfaction of the shareholders was in a way the ultimate priority, which guided all the actions of the managers.

Over time, many economists and organization specialists have recognized that it is dangerous for a company to care only about its financial performance and maximizing profits for its shareholders.

Environmental accidents at the end of the 20th centuryand century (the chemical factory explosion in Bhopal, the Exxon Valdez oil spill, etc.), ecological issues (global warming, destruction of the ozone layer, deforestation, etc.), the inclusion of women, visible minorities and Aboriginal people in governance bodies, the search for greater equity in the distribution of wealth and sound governance of the resources under their responsibility have challenged and challenged question the criteria for evaluating the performance of organizations.

This sensitivity to extra-financial factors gradually took over from the 2000s. New expectations emerged and new questions were raised about the raison d’être of organizations and their ways of doing things.

Two initiatives are worth mentioning. The first, that of the Global Compact (2000), called on companies to respect ten principles in terms of human rights, environmental and labor standards and the fight against corruption. The other was the launch in 2006, under the leadership of the United Nations, of the six Principles for Responsible Investment (PRI) by an international group of institutional investors whose objective was to federate institutional investors within a same structure intended to promote responsible investment practices. It should be noted that among the first signatories of the PRI are two local institutions, namely the Caisse de dépôt et de placement du Québec and the CSN group retirement system, Bâtirente.

Trend or profound change?

According to the results of a survey conducted in October 2021, more than 75% of our Quebec SMEs and their leaders have increased their commitment to environmental and social challenges over the past two years:

  • 82% of Quebec businesses surveyed say their customers expect them to take the lead on societal challenges, such as racial and gender inequality or climate change;
  • 63% of companies surveyed believe that major global challenges, such as income inequality and climate change, threaten their company’s long-term growth and value;
  • Two-thirds (66%) have set social and environmental objectives in their business plan and executive compensation is linked to their achievement;
  • 88% of respondents believe that companies that give back to their community have a competitive advantage in recruiting and mobilizing employees.

Four out of five Canadian CEOs of large, mostly publicly traded corporations believe their company’s purpose will affect financial performance. “This underscores the opportunity for Canadian leaders to review and optimize strategies to identify and seize opportunities to drive performance while tackling key societal issues for the common good,” observes the firm KPMG in its report.

These results seem to demonstrate that there is fertile ground for discussing the issues of integrating ESG factors into the DNA and functioning of organizations.

Long-term profitability

Business leaders are increasingly considering sustainable development as a key to their mission and integrating it into their principles and strategies in order to ensure the sustainability of businesses.

However, when economic tensions are high or in times of crisis, managers may tend to focus on short-term profitability, sometimes relegating ESG factors to the background.

A future challenge will be to ensure that sustainable development remains at the heart of business concerns, regardless of the prevailing economic environment.

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