CFO Intelligence Magazine – Spring 2023
Mark D. Mishler
MBA, CPA, CMA
ESG (environmental, social, and governance) considerations continue to be more critical in company investment decision-making, and have grown beyond meeting shareholders’ traditional focus on maximizing investment financial returns. ESG practices for company operations have been adopted by many investors as a way to assess their equity investment priorities.
What’s behind ESG:
ENVIRONMENTAL addresses how a company’s operations impact the planet’s natural resources and pose environmental risks.
SOCIAL addresses stakeholder relationships, such as customers, suppliers and employees, as well as overall society.
GOVERNANCE addresses board oversight of planning company strategy, conducting business operations, and implementing effective internal controls, as well as regulatory compliance.
In addition, there is a growing stakeholder influence on a company’s impact on the Earth and society, as well as the company’s transparency about how its governance practices meet stakeholder expectations by customers, suppliers, employees and regulators. These stakeholders judge whether a company operates in a way that is appropriate, fair, and trustworthy.
Managed properly, company ESG efforts can meet both shareholder and stakeholder needs. Doing so means that companies should not view their ESG efforts as independent, non-operational approaches, allocating ESG capital without expecting a financial return. Successful companies integrate ESG and business operations to maximize shareholder value.
Due to rapidly growing stakeholder demands for ESG business practices, companies need an ESG strategy to meet stakeholder expectations, in addition to an operating strategy that meets shareholder expectations. By integrating operational and ESG strategies, companies can achieve both operational cost reduction, increasing value along with producing favorable environmental and social impacts.
Some of these combined-benefit examples include the following:
Lower utility costs from reduced electricity consumption by replacing lighting with LED bulbs or installing motion detectors that turn off lights in empty areas; and by reduced water consumption through manufacturing process improvements and water recycling.