Hosted by purpose-driven software company Benevity, the Social Impact Show is where CSR professionals can get the latest strategies and tactics to develop their impact programs. The podcast hosts industry experts to elevate CSR programs to the next level.
In this episode, Karl Yeh interviews our Head of ESG Strategy Stewart Rassier and Head of ESG Communications Janna Irons explore what ESG is, why it's important for business, and how it differs from CSR. We cover what investors are looking for, how to improve your ESG performance, and how to align business and ESG goals. You can listen to the full interview on Spotify, Apple Podcasts, or Amazon Music, and find the full recording on YouTube.
Here's a transcription of the episode. We hope you enjoy!
My first guest is Janna Irons, who is the Head of Communication Strategy with thinkPARALLAX and Stewart Rassier who is the Head of ESG strategy with thinkPARALLAX. Thank you both for joining us today.
Okay. So let's get right into it. Today we're talking about ESG, or environmental, social, and governance. Let's start from the very top.
What is ESG and why is it important for businesses today?
Well, Karl, I think when we're talking about environmental, social, and governance issues, we're really talking about sort of the non-financial performance of a company.
So what is the impact that they are having as it relates to environmental issues like climate change, social issues like diversity, equity, inclusion, or governance around anti-corruption or even just whistleblower policies, and sort of creating a really safe workplace?
So those are the types of topics that we might be looking at and ultimately why it's important to business is that there's some very clear business drivers or outcomes for good business around it.
So when you're thinking about environment, you're thinking about potentially things around like eco-efficiencies, energy efficiencies.
If I'm reducing my carbon footprint, I'm also reducing my energy bill.
If I'm thinking about myand I'm thinking about training and development essentially, really what I'm thinking about is how do I attract and retain top talent?
When we're communicating about these topics and we're engaging with stakeholders, really what we're doing is improving the company's reputation with it.
So very clear business benefits from thinking about and doing ESG.
We've heard a lot about for example, the S&P 500 index of ESG. So what is the impact of ESG in terms of investors looking at businesses?
What is ESG investing? What are investors looking for?
Yes. Investors are paying a lot more attention than they were even five years ago around this.
What they see or where the opportunity is that if a company is managing their non-financial performance, if they're managing, measuring climate change and their CO2 outputs, if they're measuring employee engagement, these types of ESG data points.
It's basically a proxy for good management and a company they want to invest in.
So that's been a driver in the conversation and sort of investor interest in it.
You're also getting different regulation that are sort of encouraging investors to think about it.
There's regulatory risk by not addressing it, which investors are now paying more attention to.
I think those are a couple of reasons that investors are talking about this and thinking about this.
As it relates to specifically around performance, I don't want to oversell sort of the performance of ESG, [00:04:00] but if you look at the greatest example, if you look at the Dow Jones index and those 500 global companies and you compare their progress year over year and then you compare it to something that the Dow Jones has, which is the Dow Jones Sustainability Index, which is that they've defined these companies as more sustainable.
You see that their performance year over year is comparable. It's usually slightly a little below.
And if you look it's from an investor perspective, usually the more sustainable investment portfolios have about a 6% return, whereas the overall S&P has about a 7% return. So it's slightly lower.
The question that comes to the investor community is:
"Do you want to just invest in anything or do you want to invest and get relatively same returns, but do it with a company that is providing a lot of additional value?"
Got it. Now, with the rise of corporate social responsibility, sometimes some people have been confused like, "what is ESG versus CSR?".
So could you explain what are some of the differences between the two?
Because corporate social responsibility, there's a lot of CSR programs, but you also hear a lot of ESG programs in the same organization. So what is the difference?
The difference between ESG and CSR
I think it's still up for a debate. It might be in some circles' semantics, what some company is calling it.
ESG is just the topics of environmental social governance. So really we're talking about similar things that we are about corporate social responsibility.
I think ESG has really gotten this investor connotation.
It's really been grasped onto by the investor audience and the financial audience, but really we're talking about the same topics and the substance is the same.
But I'd curious, Stewart, what your take is on it.
Yes. A lot of it is semantics.
I remember sitting on a panel in 2007 where we were having a similar conversation about, "What should I call my program and should I call it CSR corporate responsibility or should I call it social impact?".
There is no consensus on what it is. So I think it's really important kind of twofold.
One is, although there may not be consensus within the whole space of social responsibility, ESG sustainability, that there should be consensus within the company and with the organization just to make sure within an organization they're using the term the same way and are talking about the same things.
I think the other piece to it is when as professionals we're having this conversation with people outside of our company.
It's important to set the terms on the front end. Just like, "Oh, what are we talking? What is included and what's not included in the topic?" and sustainability is a great one.
When I say sustainability, am I talking just environmental sustainability or is there a larger narrative around sustainability in the sustainability of the company, which includes social and governance issues as well?
Again, no right or wrong answer, but I think it's important to have the conversation on the front end so everyone is working off the same page.
Yes and I think it's also really important that we speak to audiences in the way that they understand. When we say ESG to investors, they get it.
When we say ESG to maybe an average employee, they're like, "What are we talking about?".
In that way we might want to talk about our social and environmental positive impact. We want to talk about it in the way that is easy to understand.
Yes, I know. I think that's a great point as far as I'm talking to employees, how do I engage on this topic?
And if I'm talking to investor relations or your CEOs having that conversation, even how she or he uses the terms.
The call with investor he might be referencing ESG and when you are doing a town hall with employees.
She might be doing it and using the social impact as a terminology.
And when we're talking about CSR and ESG, can you see in the next maybe couple years where the teams are more amalgamated?
Because I've interviewed different guests before and different businesses have different teams, you have your ESG team and a CSR team, some of them have a full on CSR ESG team. Some of them are divided into DEI, CSR and ESG.
Some of them just have social impact. Is that something we'll probably see in next couple years amalgamate or will they have different specific roles and different people on their teams?
Will there be an amalgamation of social impact roles?
Yes. Good question.
What is your guess about the future Stewart?
I haven't seen it happen, right? I've been in the space now since 2007 and I think we've invented more terms than we've consolidated them.
So I don't necessarily think the teams will necessarily come together.
I think one of the trends you are seeing is the establishment of a chief sustainability officer who has a lot of dotted lines to the different functional areas that you've referenced.
So I think that's a trend that we have been seeing and will continue to see.
I think one of the other trends and things that we have always encouraged organizations, companies to do, especially when they're starting off in their reporting process is to establish sort of a cross-functional committee that at the very least is liaising and looking through all of this and coordinating all of the data because ESG really touches so many different parts of an organization, so the establishment of those committees is key.
So I think you'll see that trend.
As far as the actual term, I doubt it. I think the other interesting trend is there's just more headcount being dedicated to ESG topics and issues and we're seeing the teams build out. You're seeing more specialty within HR, more people dedicated to ESG, within the marketing teams, within the communications teams. People are dedicated to the topic.
So I think that's another trend that we've seen.
So for companies who have an ESG team or an ESG function, how would they go about improving their ESG performance?
How to improve your company's ESG performance?
1. Identifying its value to the organization
Like any other sort of business imperative, treating and thinking about it that way is like, "How do you define value or how is it valuable to the organization?".
So I think that's one of the things that they want to understand is how specifically is ESG providing value to the business and thinking about tying those back to metrics:
- Is it really about attracting and retaining talent?
- Is it more of a reputation play?
- Is it a cost savings?
- What kind of metrics and value does it provide?
So I think that's one step in the process.
2. How to manage data and use it for insights
The second is increasingly thinking about how do we manage data and understand the processes and procedures in place to get better data, better information, and turn that information to insights.
3. The why and how of your ESG strategy
Then I think the third piece to this is you have to think about your ESG strategy and why you do it and how you're going to implement it.
But that strategy doesn't sit in a vacuum, you also have to have a communication strategy around it and an organizational change strategy because you can have a really great program in place, but if none of your stakeholders know about it and haven't been communicating about it, then it's not very effective.
4. Organizational change management
In most cases, ESG is essentially you asking your organization to change how it does business.
So there's a large organizational change component to the work that the practitioners are asked to do, right?.
So I'm asking someone in operations to think about how to source energy differently.
I'm asking the HR teams to think about how to recruit differently so that it's more diverse.
These are not easy challenges.
They're great opportunities, but they're also challenges for those individuals within the company. They're responsible for it.
So there's an organizational change. How do you support? How do you educate? How do you create awareness? How do you make their job easier, which is part of the fun of the whole ESG role.
5. Effectively communicating your ESG programs to impact your ESG score and ratings
And I think I'll just add that.
There is actually improving your ESG performance on those specific topics and then there is getting perceived as improving your performance which ups your ESG scores, your ratings and your rankings, and that requires really effective communication around what you're doing and how you're continuing to make progress and have really strong policies and management approaches for each of those.
Yes and that's a great point. I mean, you are being scored, you're being scored by [00:14:00] investors.
You're being scored by third party organizations.
You're even being scored by nonprofits as they think about it and these claims are being as assessed.
'Assessed' maybe is the wrong word, but there's more scrutiny to the claims that are being made. So the rigor of the data and the information and then claims is key.
And then, also how you're talking about it with a level of authenticity and credibility and all of it is part of what we spend a lot of time on.
The next step of your ESG journey is, "All right, so we've got some of these basics in place.
Let's figure out how to make it unique within your industry, because everyone has a STEM education program so why is your special?".
Everyone has now made a net zero commitment, so how do we make it credible? Those are the types of next step questions you have to ask and think about from an implementation perspective.
I actually want to go back to what you were saying in terms of your strategy and goals and how you talk about these metrics that you're scored upon.
Is it something that businesses need to have an agreement upfront?.
Like, "This is what we're going to try to accomplish with our ESG program and these are the metrics that we're going to score against".
Or is it something where it's more adaptive where the first year, "This is what we're going to be tried to score against versus the next year, the focus is this".
Or is it a five year fix plan, "This is the targets that we're going to try to hit?".
How to align the business on your ESG goals
Yes. I think the short answer is, it is probably a little bit of all of it.
Ultimately when you're thinking about strategy, whether it's ESG strategy, any type of business strategy is about making choices. Right.
So, you definitely have to that moment ,start and at the beginning and be like, "All right, we need to make some choices of where we're going to go".
I think even before you make choices about where you're going to go, you have to understand where you are.
So doing some type of baseline for ESG performance and transparency, understanding what policies you have in place, what programs fit within that larger umbrella of ESG and then making some choices of what you want to prioritize within the space.
One of the things that we encourage companies to do, and you're seeing more of this, is to do something called a materiality assessment.
Which is a fancy way of saying, "Go through a process and understand what we prioritize what's most important to our business, and what's most important to our different stakeholders.
That's going to help you make some choices from this larger universe of ESG".
And then, I think some type of multi-year approach, again making some type of commitment two or three years out, those can be commitments like a net zero commitment, which is to a specific target and a metric.
But it also can be more qualitative of just like, "I'm going to make a commitment to set up a DEI council", and those types of goals you also see.
I think figuring out what those choices are, establishing some goals that you're working towards, not only for you as the practitioner, but for the whole organization to know which direction you're going is super helpful and provide some clear direction.
And also at the end, right after the year over year progress, or when I achieve that goal after three years, it is a huge opportunity to celebrate and having those in place provides a really strong platform for communication.
How has thinkPARALLAX done their ESG program?
Can you tell us a little bit more about thinkPARALLAX and what you've done in terms of Environmental Social Governance?
thinkPARALLAX and ESG
Yes. I think, we are a company that really tries to practice what we preach.
So just a little background on thinkPARALLAX, we started almost 20 years ago as a creative, more communications driven company around purpose and positive impact.
And around 10 years ago started doing reporting and then have expanded since then to really offer the full service from helping with strategy development, to reporting, all the way through to communications and engagement.
So really we are helping clients to develop their strategy. We're always thinking about things like engaging our own employees, our own diversity inclusion program, our own footprint.
We're not a huge company, so we don't have a massive footprint but we're always thinking about how we can reduce our missions and our, our impact.
And so we're really a people driven company.
So I think a lot of our own efforts are around making sure that we have really great wellness programs in place and volunteering and lots of opportunities for engagement and collaboration.
I've always asked this with other organizations and it's always interesting the responses, but how crucial was leadership in terms of your ESG program or getting their buy in or getting their involvement?
Importance of leadership involvement and buy-in for your ESG programs
I mean, I think for us, we're pretty small.
We're 25 people.
So, we don't have layers and layers of people that need to get engaged. From the founding, it was a company that really wanted purpose at the core.
So, that's always been integral to our business and how it's run.
So I think for us there, wasn't a lot of ever convincing of anyone to get on board and that's always been part of the brand.
And so, people who come to thinkPARALLAX are attracted to that and that's why they're here.
Do any of you have anything else to add in terms of our introduction to ESG?
Well. Karl, on your last question, I think if you're looking at some of the larger companies, it's really important that those senior leaders give that the stamp of approval and really demonstrate and show that ESG is important, whether it's it being part of the communications plan, including it in briefings and really highlighting and ensuring that it's top of mind for employees.
The other piece to that is really also having a strategy for thinking about how do you engage middle management and directors in it.
And often that's where we see the biggest hurdles. It's hard to get the CEO or a senior vice president, but it's doable and it goes back to the idea, the point I was making around organizational change, the hurdles are off often at that sort of mid level within an organization.
So understanding what's important, really hitting on some of the business value that it provides for their particular departments and teams is key.
And you can have that top-down and bottom-up, and then also a middle approach, that's where you see some of the more effective ESG strategies implemented throughout the organization.
Yes and I think you make a really good point, Stewart.
It's about really understanding where they are now, especially employees or managers or leaders.
What do they believe now to be able to really get them on board?.
It takes education and engagement and training sometimes to get those leaders at all levels to really own this and make it feel authentic and real and that they're not just being told to repeat these messages because it's important now.
So really understanding where they are and what they believe is really key.
Check out part two of our three part series on ESG by watching this video here. Thanks for watching. And we'll catch you on our next episode.