ESG (environmental, social, and governance) is an increasingly hot-button term in politics. But company ESG teams are dealing with their own evolving challenges that are often more consequential than the political drama. For one, few stakeholders ever even knew what ESG meant, let alone that they cared about it. Companies need to communicate to those stakeholders differently about their sustainability and social impact efforts.
That was my main takeaway from the second annual Fortune Impact Initiative, which took place this week in Atlanta, Ga.
Here are my other top insights:
Reports of the death of ‘ESG’ were premature.
Having originated in the investor world, ESG is designed as an investment risk assessment tool. So, unsurprisingly, despite the political backlash, many investors remain adamant about getting ESG data from companies. In response, companies like GE and Walmart continue using the term on their websites, their chief sustainability officers Roger Martella and Kathleen McLaughlin, respectively, told me.
With ‘ESG’ out of fashion, companies are coming up with rallying cries that unify stakeholders.
People rarely get passionate about corporate acronyms. In that sense, it’s a blessing that ESG got thrown under the bus, spurring companies to find more sensible banners. My favorite is “sustainability and social impact,” a term adopted by Colgate-Palmolive and its CSO, Ann Tracy, who talked about it at our meeting. Sustainability refers to the long-term viability of the company and its impact on the world, and social impact is about the immediate effects it has on the people it touches.
On corporate Scope 3 emissions disclosures, the question is how, not if.
While we gathered in Georgia, news of California’s new corporate climate law trickled in. It will force companies active in the state to measure and disclose their Scope 3 CO2 emissions going forward. Earlier, the International Sustainability Standards Board (ISSB) and the EU made similar moves. At the conference, the most common sentiment I heard is that on Scope 3, the die has been cast, even ahead of any SEC decision on the matter.
Few companies are already using ESG insights to rethink their business models.
Given the progress companies have made in their ESG reporting, you’d think these reports would start to alter companies’ business models. Not so. When I asked in a roundtable whether companies had started to change their strategies or product offerings to favor sustainability and social impact, almost no one responded affirmatively. ESG reporting remains stuck in compliance, it seems. The exception I heard was startups, some of which are designing their business models to fill emerging sustainability needs. (Indeed, you can nominate impact-oriented startups for the Fortune Impact 20 list using this form.)
Governance and ethics often get overlooked, but companies do so at their own risk.
News broke this week of two Fortune 500 companies facing serious problems because of governance and ethics issues. BP CEO Bernard Looney stepped down because of undisclosed workplace romantic relationships. At Boeing, the CEO and CFO came under fire for special treatment for executives amid the return-to-office push. (The former allegedly often uses a corporate jet to commute, the Wall Street Journal found. For the latter, the company leased an office close to his Connecticut home.)
More than one conference attendee told me their company leadership faced similar issues of perceived hypocrisy over return-to-office policies, pay, or other issues of governance and ethics. It’s a reminder that governance, while boring on the surface, has a profound impact on company culture, practices, and bottom line.
Those are my key takeaways. But what do you think? If you attended or followed our coverage, we’d love to hear from you. More news below.
Peter Vanham
Executive Editor, Fortune
peter.vanham@fortune.com
This edition of Impact Report was edited by Holly Ojalvo.
ON OUR RADAR
California legislators approve America’s most expansive greenhouse gas emissions disclosure rules for big business (AP)
California lawmakers passed sweeping legislation Monday requiring major public and private corporations that operate in the state and make over $1 billion annually to disclose their direct and indirect (including from activities like business travel) greenhouse gas emissions.
In carbon accounting standardization, ISSB is the frontrunner (Fortune)
If standardization comes to fruition, it will be the ISSB leading the way, said Lindsey Hall, head of ESG thought leadership, S&P Global Sustainable1, a source for sustainability intelligence from S&P Global, at the Impact Initiative.
“I do think the ISSB, absolutely, is crucial, particularly for that business-focused sustainability reporting and tying it to the language of financial reporting,” said Emily Pierce, chief global policy officer and associate general counsel at Persefoni, a software company that provides a climate management and accounting platform.
