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It's a challenging time for executives, specifically those directors and officers of public companies. In addition to reaching profitability targets and strategic goals evaluated by shareholders on a quarterly basis, public companies are increasingly expected to establish and disclose their environmental, social and governance (ESG) goals and progress. Although ESG considerations are not necessarily new for many public companies, media attention, litigation and regulation surrounding ESG has been amplified recently.
Certain ESG considerations, such as those that fall under the social umbrella, have universal application, while others may be more industry specific. Social considerations such as racial and gender equality and social justice are at the forefront of a recent litigation trend, where shareholders have challenged corporate statements concerning diversity and inclusion (D&I). As a result, many employers are increasing their attention to the social component, and rightly so. A recent study found that millennials and Gen Z generations place greater importance on social concerns than their predecessors do, and will expect more from their employers in this area.
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Data metrics & reporting
When an organization's focus is on ESG, the first question is not what to do, but how to measure ESG. As the saying goes, you cannot measure what you don't manage. Likewise, you cannot manage what is not reported. Given this, it is critical that a company's ESG strategy include a reporting solution by which its employees can safely and securely report, whether anonymously or not, misconduct or other workplace concerns within its company. For instance, NASDAQ has identified discrimination and harassment initiatives as a common social metric that companies should track. Whether a company follows a harassment or discrimination policy, the extent to which the company takes action in connection with the policy, how incidents are handled and the time in which they are handled/resolved and the culture data insights from such reporting are all measurable social metrics that tie into existing ESG frameworks. More importantly, due to the ability to measure these data points, organizations can now easily report on these items.
In addition to implementing company workplace misconduct, harassment and discrimination policies, at a minimum, a reporting solution tied to such a company policy should track real-time and long-term culture metrics that provide insight into:
- Workforce diversity in incidents
- Worker-classification in incidents
- Employee/former employee statistics of workplace misconduct
As many have learned over time, and more recently with the Activision "blizzard" that occurred, ESG metrics as it relates to culture data and social relevance depend on what is known or should be known by the leaders of that company. In Activision's case, CEO Bobby Kotick knew of the company's systemic workplace misconduct (sexual harassment and discrimination) issues for years. Some would argue that despite knowing these incidents, who would he report on it?
ESG's impact on business results
It's no revelation that a company with a full ESG focus and a robust social governance platform will lead to a more diverse and inclusive workforce, which, in turn, results in higher revenue/profitability. Those without measurable ESG categories, platforms and policies/procedures will see a dip in shareholder value and increased risk of litigation.
More importantly, those public companies that continue to allow toxicity to remain and not be addressed quickly and effectively will have a downward impact on a company's share value and overall perception in the marketplace. Just last year, a record $3.6 billion was claimed in workplace class action settlements, more than double the amount in 2020. This highlights the importance shareholders and employees are placing on the "social" side of the ESG metrics.
ESG strategies for data & metrics reporting
With the social and governance umbrellas, organizations require a concrete framework for risk management and a platform that meets the evolving needs of the employer and employee. With a focus more on the social side of ESG, employers will need to be measured against national averages for handling social, internal culture issues. For example, when employers provide a reporting platform for workplace misconduct incidents, and that platform puts the onus back on the employer to investigate, how quickly are they resolving the incidents to resolution? The national average is around 25-30 days. However, is that a measure of success?
Or, should it be quicker? Most employees will want this resolved more quickly, and shareholders generally do not want an incident investigation outstanding for over three weeks. Such a length of time would only lead to frustration, contempt and resentment from the employee, all factors that could lead them to file an EEOC charge or lawsuit. For employers, the ability to provide their employees with a voice that is heard while ensuring a path to resolution quickly creates a greater D&I culture and removes toxicity – which is the root of why DEI initiatives don't take off and ESG metrics lag behind industry expectation.
ESG mistakes to avoid
A check-the-box policy or documentation is as good as the paper it's written on and can go up in flames fast. Having a robust reporting platform that provides the ability to safely report, but also ensures a clear path to resolution and does not put the onus back on the employer to investigate not only provides the reporting and data framework, but also a concrete process to which such ESG policies are implemented and governed. This also ensures companies are protected and ahead of the curve when it comes to SEC reporting and disclosures on ESG and D&I initiatives.
The one mistake to avoid is to implement a "kick it down the road" reporting platform or a purely anonymous platform that requires existing HR, labor, and ERG groups to investigate the incidents. There must be a more objective, third-party process whereby incidents or issues on the social side of ESG are taken seriously and track numerous relevant reporting data.
In addition, companies need to be aware of the inherent risks to their board members and their personal assets as it relates to ESG. In addition to monetary compensation from the targeted corporations, recent lawsuits have sought to replace board members, claw back their compensation, and revise incentive plans.
Summary of action needed for ESG reporting
Employee voices matter. Listening to employees allows employers to know the pulse of their organization, which in turn allows for greater ESG reporting and transparency. Pursuant to a Deloitte survey, organizations need to address data preparedness on their ESG metrics while ensuring governance capacity and resources to report on such metrics. However, according to the survey, while ESG reporting requires effective use of technology, 92 percent of survey respondents believe that their organization needs to invest more in technology to address this demand for consistent and reliable measurement, reporting, and disclosures. Given this, 75 percent of executives surveyed indicated that they will need a third-party, objective platform to enhance the reliability of the culture, social, and governance metrics data reported.
Jared Pope is the CEO and founder of Work Shield, the first and only start-to-finish workplace harassment and discrimination solution and technology platform that gives employees a real voice, protects and ensures a safe workplace culture, and removes employer liability – all at the same time.
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