Helping Your Personnel to Become Advocates
As reported by McKinsey in their article “Five ways ESG creates value” they reference findings from more than 20,000 studies on the impact of ESG propositions on equity returns which determined that 63% of all reports included showed a positive result on equity value for organisations that disclosed ESG performance and 8% of all reports showed a negative impact on equity value, presumably because the reports were considered to exhibit poor sustainability performance.
Thus, the evidence is almost overwhelming that superior performance on ESG matters is inextricably linked to generating superior financial performance.
As a result, In Australia, where mandatory ESG disclosures are predominantly restricted to the Governance dimension and are principally made via the corporation’s annual shareholder reporting obligations and due to the Director’s fiduciary duty to protect shareholder value, approximately 80% of the companies listed on the Sydney Stock Exchange report their ESG performance in some measure.
The systems used by over 650 ESG rating organisations almost always consider the accuracy and transparency of reporting in developing the rating. Thus, to protect shareholder value it is crucial that an organisation strive for accuracy and transparency.
Disclosing the processes by which ESG performance data is collected, analysed, and reported Is a step in the right direction but then disclosing process audit outcomes will also be necessary to maintain confidence in the reporting.
Another less direct approach to transparency is to include stakeholders in the processes but that can present challenges with confidentiality. However, since staff need to be included in the process it follows logically that if the staff are able to assess that the processes are clear, rational, and effective they will become ambassadors for business with regard to transparency reporting.
Make Gen Z and Millennials Your Ambassadors
Generation Z consumers (aged between 16 and 20) is a digitally-entrenched generation and is fast dethroning the millennials (aged between 21 and 38) and becoming the trend-drivers. Generation Z and Millennials in Australia, nearly 8 Million people, represent around 31.2 percent of Australia’s population.
Employees, especially Millennials and Gen Z, look to work at companies that reflect their expectations of purpose, culture, and professional development. Companies that align to those expectations have been proven to be better positioned to attract and retain the finest talent. For example, Millennials, the largest generation in the workforce since 2016, are concerned with safety, social equality, and environmental sustainability. They also believe that business should consider stakeholders’ interests as well as profits, according to Deloitte’s 2019 Millennial Survey. Transparency of ESG disclosure, internally and externally will therefore act as a differentiator among companies, strengthening an employee’s confidence, trust, and loyalty. The obverse of which is the risk of losing talented employees as a result of weak ESG practices.
There is also growing evidence that a side-effect of the acceptance of ESG behaviours by employees is a boost in employee motivation that results in a productivity uplift according to McKinsey.
MCDM Can Guarantee Transparency
Multi-criteria decision making (MCDM) provides a structured approach to making decisions through semi-quantitative analysis. Similar to financial benefit analysis (FBA), MCDM adds a range of non-financial criteria to the mix in allowing more balanced and customer-focused investments to support the achievement of outcomes and objectives.
Decisions made using MCDM then are supported statistically so the remaining challenges are to ensure data is accurate and the measures are reasonable (A given if using an existing and well accepted framework).
Thus, if data collection is accurate and MCDM is used with performance measure standards then transparency is guaranteed to your personnel who will then become your ambassadors.
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