Everywhere one looks, the need to tackle a broad range of environmental, social, and governance issues is intensifying. But one set of actors that are critical to the move from lofty ESG commitments to real-world impact to answer that need often gets overlooked—private companies.
In fact, given their size, scope, and place in our economies, private companies are uniquely positioned to drive mass adoption of meaningful ESG standards and practices—and to do so in a way that creates important commercial opportunity. Nearly all the 27 million companies in the United States are private companies, and they comprise more than 40% of the U.S. economy. In 2020, a vital subsector of private companies, those in the private equity ecosystem, included $4.5 trillion in assets under management, a number that has only continued to expand. In the United States, more capital has been raised in private markets than in public markets each year since 2009.
When it comes to ESG implementation, the importance of private companies transcends their scale. This is particularly true because private companies enjoy a path to measurable ESG impact far less cluttered than the path of their publicly traded counterparts. Private companies are more flexible from a governance perspective. They are less bound by the quarterly pursuit of financial returns. Although many operate at tremendous scale, most are also more operationally streamlined.
Private companies—of all sizes—also hold the key to ESG implementation for the large public companies subject to so much attention from regulators and activists. It is countless private companies that make up the supply chains that hold the keys to meaningful ESG implementation for our largest economic actors.
As CEO of Diligent, I have the privilege of regularly interacting with business leaders, investors, and regulators around the world on pressing governance and regulatory issues. From my perspective, both the immense ESG potential of private companies and the roadmap for them to lead the way are unmistakable.
There is no area in which the promise of private companies as catalysts for ESG adoption is truer than the “E” in ESG. As the signs of the climate crisis proliferate, so too does the need for all companies to alter their environmental impact and become more sustainable—today. That means acting on three fronts—leadership, measurement, and culture change—to turn transformative ESG commitments into concrete impact.
Action requires leadership powered by experts. For more and more companies in the U.S., that means naming a chief sustainability officer (CSO), but that is not the only formula. In U.K. corporate governance, for example, CEOs are formally adopting CSO responsibilities. As this year unfolds, I will incorporate a sustainability perspective into my work, ensuring it is a priority at every level of our organization. To make sure that focus is expert-driven, in so doing, I will work closely with a new team member hired specifically to galvanize ESG action within our company. Bottom line: Creating sustainable businesses requires an empowered point person.
Last year hundreds of companies, including my own, joined the Net Zero Carbon by 2040 pledge in the lead-up to the United Nations climate summit in Glasgow. The essential first step to make good on that commitment is to accurately measure current greenhouse gas emissions. Unless and until companies can do so, getting to zero will be impossible. It is why in 2022 our company will use our own ESG offering, Diligent ESG, to measure the full extent of our carbon footprint to begin implementing ways to reduce it.
The role and opportunity for private companies is particularly important when it comes to these net zero pledges and the measurement that underpins them. The largest companies that have made those commitments will only be able to comply if their suppliers and vendors are similarly answering the call. As significant public companies adapt their practices, they will have to turn to vendors who can accurately measure and report their carbon emissions, as well as other non-financial ESG metrics, like never before. Early ESG adopters throughout the private company ecosystem will enjoy a commercial competitive advantage.
Finally, to drive real impact, a sustainability ethos must also permeate corporate culture. From supply chains and hiring practices to vendors, every decision needs to be viewed through a sustainability filter to account for all aspects of a business’ impact on the communities in which we do business. This year, we will also use Diligent ESG to ensure we have real-time visibility into every corner of the organization from the boardroom and C-suite, helping ensure our commitments manifest as real-world impact.
Ushering in an era of ESG accountability requires decisive action—action private companies are uniquely positioned to deliver in 2022.
Brian Stafford is CEO of the Diligent Corporation.
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