From Wildfires to Polar Vortexes, Occupy Wall Street to Tax Plans, and Morgage Documents to Equifax, environmental issues, social inequality, and significant data leaks are on the forefront of every newspaper. No matter when you look through the headlines of the day, these issues will come up. When we look at the companies to work for and invest in, we seldom consider, whether or not they align with our vision of the future.
Predictiveness of bad Policy Scores
Our world is changing ever faster, and we have to live with these changes. Ten years ago, others would have considered us a lunatic for suggesting that Volkswagen, the most prominent German car maker, is cheating for their emission values. Likewise, we probably never would have imagined that Wells Fargo opened fake accounts with our data or that Equifax and Facebook could lose its critical assets, our credit data. All of these happened. What united these companies even before the scandals broke loose was, that their Environmental, Social, and Governance policies were subpar at best.
If you had invested in any of these companies, you would certainly have lost a lot of money when their stock tumbled after the scandal. At the same time, the shady dealings and scandals represent a loss of trust that the companies cannot easily replace. As Aesop once proclaimed: “A liar will not be believed, even when he speaks the truth.” Consequently, the cost of opportunity, that these scandals represent might even be higher, and less understood, than any penalty, the companies might be forced to pay.
Good Scores for Future Growth
At the same time, if you look for stable employment or good growth potential, good Environmental, Social, and Governance policies, can usually predict future growth. Labor and resources are getting more and more expensive unless we see governmental interventions. Younger workers are more likely to consider working in areas, where they can make an impact on the future. Thus, talent acquisition is considerably cheaper for companies, that engage in green and forward thinking. Likewise, most green companies focus on consuming fewer resources, both regarding energy and production input.
Consequently, most development will be in areas, which people consider, green and progressive. Thus, these areas are the ones where you can score stable employment and more long terms growth.
For investors, growing companies also present an excellent target for acquisitions. M&A, in turn, can result in great one time returns.
What does it mean for Companies
If you are running a company, that implies, looking at your ESG policies and how you are trying to make an impact. Ensuring, that you are having a reasonable outlook for the future. Considering questions like the following.
- Are my privacy policies above the bare minimum?
- Do I ensure that my Offices conserve energy?
- Are my lobbying efforts focused on positive changes for every citizen and not just a selected few?
Considering these policies can not only improve your outside perception but if applied correctly, reduce your operating costs. Just think about the privacy debate between Facebook and Apple. It is evident that Apple, with the better Privacy Policies, has the upper hand in the discussion. Even if some users might not like the actions and news in the argument, it is a lot easier to convince users, that selling data is a bad thing, than to focus on the advantages.
However, just having policies is not enough. Companies have to train their employees in them and keep their shareholders in the loop about them. Otherwise, the paper is patient, and nothing happens. Showing your shareholder, that your company is changing, enables you to build up trust and gain reputations as a thought leader — no matter, whether you focus on privacy, environmental issues, or common policies.
Conclusion
Making sure your company has substantial Privacy, Environmental, Social, and Governmental Policies is an essential factor in attracting potential and capital today. On the other side, investing in and working for a company with these policies in place allows you to conduct meaningful and secure work for the future as well as securing a steady income. Without these, you might be able to achieve a great result today, but you might not be looking ahead to any future growth.