One of the cool, new terms you might hear being thrown around now in the world of business is ESG.
ESG stands for Environmental, Social and Governance, and refers to the three crucial factors when measuring the sustainability and ethical impact of an investment in a business or company; a way of judging a company by things other than its financial performance, for example its policies relating to the environment or how happy its employees are.
Most socially responsible investors now check companies out using ESG criteria to screen investments.
As a university and business school steeped in the fast-developing world of sustainable business, Grossman Associate Professor Susan Hughes, who also serves as Director of our Master of Accountancy program and teaches a senior/master’s level course on Environmental and Social Reporting, was one of 35 invited participants and facilitators at the Better Alignment Project (BAP) Stakeholder Roundtable held recently in San Francisco.
Participants included members of the sustainability nonprofit Ceres, the standard-setting organizations, financial service firms, corporate ESG report preparers, and accounting/finance academics.
The BAP is the outgrowth of efforts by Ceres, the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Climate Disclosure Standards Board (CDSB) and other ESG-related standard-setting organizations, to enable efficient reporting of clear, coherent and comparable ESG data while maintaining the individual disclosures frameworks. Efforts are also underway to map the SASB framework and standards to the disclosure recommendations included in the Task Force on Climate-Related Financial Disclosures (TCFD).
The BAP participants were quick to point out that U.S. generally accepted accounting standards that serve as the foundation for U.S. public company annual financial reports, were first thought of in the 1930’s and not significantly improved until the creation of the Financial Accounting Standards Board in 1973.
As the ESG frameworks are all in their adolescent stages, and globally asset owners are increasing their focus on allocating capital toward ESG-related investments, not only will it be helpful to align these disclosures, it will also be useful to determine the “best” metrics and disclosure practices, so that users of ESG disclosures and reports are informed in a consistent and comparative manner.
This should level the playing field for everyone and maintain the momentum of investment in to more sustainable, responsible business practices.
Along with the recent success of our Sustainable Innovation MBA students employing ESG principles winning the Wharton Total Impact Portfolio Challenge, you can be assured Grossman will continue to be at the forefront of providing better understanding, use and evaluation of ESG across the business world.