A new survey finds that many environmental, social and corporate governance (ESG) programs fall short on governance, risk and compliance (GRC) issues.
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The global ESG Planning and Performance Survey was published in September by OCEG (Open Compliance & Ethics Group), an American non-profit think tank focused on GRC. It looked at what organizations are doing to address governance, risk and compliance in terms of planning, communications, budgets, technology and other activities. The respondents included 530 executives, most based in the United States and European Union. Approximately two-thirds were involved in managing and reporting on ESG or ESG policies for their companies.
More than half of the executives surveyed expressed little or no confidence in their company’s ESG program. This includes 30% reporting minimal confidence that they have “mature, well-documented” ESG capabilities, and about 28% saying they have no confidence at all. Only 9% said they are highly confident in their companies’ ESG programs. Varying perceptions of the purpose and importance of ESG seem to play a role. Most of the executives (78%) agree that ESG efforts affect an organization’s brand and reputation, but less than half (48%) believe it affects financial performance.
One underlying problem is that there is little consistency in the scope, disclosures and standards of ESG programs and initiatives across companies, and too much room for interpretation. This lack of cohesion is raising concerns from regulators that organizations are “greenwashing” – using marketing and PR to give the impression that their products, goals, policies and/or practices are environmentally friendly when in fact they are not.
Numerous corporate associations and intergovernmental bodies have published ESG frameworks, but they are non-binding. Within major economies such as the U.S. and the E.U., regulators “have yet to implement comprehensive and harmonized standards for making ESG commitments and disclosures”, Reuters reports. If companies have no clear accountability, and do not necessarily believe ESG is good for their bottom line, then making choices in support of the environment, social good and corporate governance depends solely on their own values.
“A lot of sustainability programs are being published on the back of a spreadsheet and a prayer”, said Matt DiGuiseppe, Vice President of Research and ESG at Diligent Corporation. Diligent makes corporate governance software for board members, and was involved in the survey.
Carole Switzer, an expert on governance, risk management & compliance and Co-Founder & President of OCEG, believes companies that underestimate the importance of ESG do so at their own peril. “The risks presented by failure to maintain strong, ethical governance and address environmental, labor and other social aspects of business are substantial,” Switzer wrote in a blog post. She cites risks such as reputational damage, erosion of customer and investor confidence, as well as customer boycotts, labour strikes and more extreme outcomes related to environmental damage.
Some bright spots in the survey’s findings suggest that the state of corporate ESG could be changing. More than half of the executives said that they considered ESG metrics for some of their company’s investments. About 32% said they are planning to base executive compensation on ESG factors, and 20% said they already do.