Does your board have an ESG policy? This concise guide for company directors and board members examines why ESG is so essential in today’s climate, and the ten ESG-related questions directors can ask their executive teams.
ESG policy and a director’s guide
Global payment processor Paypal Holdings ramped up ESG initiatives during the initial pandemic wave in 2020. Dan Schulman, president and CEO of Paypal, wrote in the 2020 Global Impact Reports, “We must work together and develop new opportunities to collaborate across the public, private and nonprofit sectors to advance our shared ESG priorities. This sense of collaboration and purpose informs all of our actions at PayPal.”
The company maintains a healthy connection between profit and purpose, with decentralised management of ESG matters. Paypal released 2021 materiality assessment updates, focusing on employee wellness support, data privacy, diversity, inclusion, equity, belonging, and climate change.
Paypal joined the UNGC (United Nations Global Compact) initiative in 2020, encouraging businesses to adopt socially responsible and sustainable policies in line with the UN’s 17 SDGs. The company actively supports 11 of the 17 goals outlined with the SDGs, prioritising employee well-being in response to the pandemic’s current and future impacts on the workforce.
Environmental criteria include a company’s energy use, the waste it produces, how it conserves natural resources, and how it treats animals.
The criteria are often used in evaluating any environmental risks a company may face and how the company is managing those risks. For example, does it own contaminated land? How does it dispose of hazardous waste? How does it manage toxic emissions, and how does it comply with environmental regulations?
Social criteria examine the company’s business relationships. Does the company have high regard for employee health and safety? Does the company allocate a percentage of its profits to its local community? Do company employees engage in volunteer work? Are other stakeholders’ interests taken into account?
Investors looking at the ESG practices of the company will seek to ensure its reporting and accounting practices are reliable and accurate. Investors will also look at the way a company treats its shareholders and how they are treated with respect to important matters they vote on. Investors want to know that the company does not engage in illegal practices or that it avoids conflicts of interest when appointing its directors.
The lack of an ESG policy can hurt a company’s value
Investors are now aware that environmental, social, and governance criteria go far beyond ethical concerns. With robust ESG criteria, companies can avoid practices that involve risk. For example, Volkswagen’s emissions scandal rocked the company’s share price, and investors lost billions.
Investors prefer to invest in ESG-minded companies and financial services companies like Goldman Sachs and JPMorgan Chase publish reports on the ESG practices of various companies each year.