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Boards Still See Social and Environmental Sustainability as Marketing – Not Business Strategy

By Melissa J. Anderson

Are environmental, social, and governance issues making an impact in the way companies do business? According a recent study by Calvert Asset Management and The Corporate Library, yes and no.

The study found that about 60% of the S&P 500 board committees with oversight of corporate responsibility issues. At the same time, the study found, ESG factors are not often integrated into corporate strategic planning.

Bennett Freeman, SVP, Sustainability Research and Policy at Calvert and Richard A. Bennett, President and Chief Executive Officer of The Corporate Library write:

“All too often, boards still appear to view these issues in soft philanthropic or marketing terms, rather than as hard, fundamental business risks or competitive advantages. In some cases, however, committee charters are being developed that suggested a new and more nuanced approach to social and environmental sustainability.”

The report explains that most of the time, when companies do pay significant attention to ESG issues, “they tend to stress the review and monitoring of policies and management systems.”

Instead, Calvert and TCL say, companies should do more:

“Fewer than half of these committees require their directors to monitor and make forward-looking recommendations about sustainability trends, strategies, or targets; only about a quarter are responsible for environmental and social risk management; and even smaller numbers involve boards in oversight of corporate responsibility-related stakeholder engagement, incident readiness, or reporting.”

On the other hand, according to a recent Fast Company article, concern for ESG is becoming a prerequisite for executive recruitment.

“Further evidence of corporations focusing on sustainability comes from the new book, Sustainable Excellence. Authors Aron Cramer and Zachary Karabell tell the story “of how sustainability is now front and center when many companies make the most important decisions about their futures.” Their examples include Nike, Coca-Cola, PepsiCo, Walmart, IBM, Clorox, Exxon Mobil, Shell, Ford, Unilever, and many others. Cramer is President & CEO of Business for Social Responsibility (BSR), serving 250 member companies seeking to develop sustainable strategies and solutions.”

The Fast Company article also cites the number of individuals who participated in the recent Clinton Global Initiative meeting. But, while the article takes a rosy view on the importance of ESG issues to the world’s largest companies, the Calvert and TLC study indicates that those numbers don’t add up for smaller companies.

According to the report:

“A study of committee names in the Russell 3000 shows that only 8% have a name that suggests oversight of environmental and social matters, with larger companies being much more likely to do so: 18% of the Russell 1000 companies have sucha committee, compared to only 4% of Russell 2000 firms.”

What the report shows is that even though a decent number of large firms have people devoted to ESG matters, only a small portion of them pay attention to these issues when it comes to a business imperative standpoint. And an even smaller portion of small and medium sized firms have someone devoted to ESG issues at all.

While it might be nice to say that ESG is making headway, the Calvert and TCL study reveals that ESG has a long way to go before businesses start engaging in ESG initiatives from a strategic point of view.

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