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3 ways to build meaningful ESG metrics
Authenticity matters, and the public isn’t colorblind to greenwashing. To that end, it’s vital that companies purporting to take ESG action do more than give lip service. As Engine No. 1’s Michael O’Leary and Two Sigma Impact’s Warren Valdmanis write in the Harvard Business Review:
“Ultimately, capitalism is nothing more than the sum of individual choices. Our economy is no more moved by an invisible hand than a Ouija board is moved by invisible spirits.”
Mystic overtones notwithstanding, it’s a good point. Society’s values can and should shape corporate policy. And as Fast Company reports, more than 90% of S&P 500 companies publish sustainability reports, but these are mostly for public relations purposes.
Investors can play a key role in holding companies accountable to their ESG commitments. Here are three ways:
- Investors can push companies to report on ESG efforts using standardized metrics. This will help eliminate practices like publishing, for example, a company’s diversity policy without also releasing its actual workplace makeup and pay disparity between groups. The International Business Council’s Stakeholder Capitalism Metrics — which has garnered commitments from 61 companies including the likes of Sony, PayPal and Unilever — is an outstanding example.
- Investors also are in a position to define meaningful criteria toward their own interests — and enforce them. BlackRock, for example, informed companies they would need to provide better, more complete climate data or face votes against management.
- ESG scores aren’t the only way to determine how well-run a company’s ESG initiatives are. Morgan Stanley’s Counterpoint Global team created a 10-item questionnaire to measure the sophistication of a company’s sustainability program and the amount agency its director has. Sample questions: How many layers of reporting are there between the head of sustainability and the CEO? Does the board have a dedicated sustainability committee?
In Other News
During the pandemic, many cities created pop-up bike lanes to allow cyclists easier ways to navigate the streets. Research on these efforts shows good infrastructure improves environmental efforts as well as public health.
ESG investors are committed to the greater good associated with social equity, but others should take note: A recent study shows that the racial wealth gap costs the U.S. economy $2.3 trillion annually.
Where the Wild Things Are
A team of ecologists from Yale has created a heat map showing the likeliest spots unknown animal species might exist. According to their findings, published in the journal Nature Ecology & Evolution, Northwestern South America and Southeast Asia could be hotspots for undocumented biodiversity.
Taking a Bite out of Carbon
Fast-casual restaurant chains including Chipotle, Panera and Just Salad have introduced carbon labeling to educate diners on the impact of various menu items. Would you like some climate-friendly fries with that?