Introduction

Over the past 5 years, the Environmental, Social and Governance (ESG) movement has become more prevalent. The concept was first introduced in 2004 by the United Nations (UN) under the framework of “Corporate Social Responsibility”. Corporate Social Responsibility has transitioned to ESG and has become globally recognized, with more than $30 trillion in assets under management. Many large corporations are currently implementing ESG strategies and are also encouraging organizations within their supply chain to implement all or part of ESG. In this article I will explain what ESG is and how implementing ISO standards can provide an internationally recognized and standardized foundation for organizations pursuing ESG initiatives.

What is ESG?

ESG stands for Environmental, Social and Governance. ESG is a framework that an organization can integrate into its overall business strategy. The goal of ESG is to generate value for all interested parties of the organization, such as owners, investors, customers, employees, suppliers and the community. ESG is a way for an organization to be sustainable, manage risks and opportunities and adjust to changing operating environments. Many private and public equity investment firms require organizations to implement ESG, to ensure their investments are sustainable. Beyond investors, any business owner should want their own investment in their company to be sustainable. Sustainability indicates that an organization has leadership, funding, operating insights and can manage and adjust to ever evolving changes the organization will or may encounter. For example, in 2019-2022 sustainable organizations were able to navigate the coronavirus pandemic (COVID-19). Organizations that were not sustainable quickly went into bankruptcy within months and business owners and investors lost their investment. Employees lost their jobs. Suppliers of those companies lost their business, which combined had a negative impact on the economy. Now that we understand the concept of ESG, let’s briefly dive deeper into each element of ESG and how ISO standards can be utilized. A sustainable organization understands and works to mitigate its impact on the environment.

Environmental

Environmental issues such as climate change, greenhouse gas emissions, biodiversity, waste management, energy management and water management are at the forefront of many large corporations. Increasingly large corporations are becoming interested in demonstrating to investors their concern for the environment and reducing the organization’s environmental footprint. These organizations understand that for the organization to be sustainable, the organization must sustain the environment. Negative impacts to the environment will result in a negative impact to business operations, profits and therefore investments. Organizations operating blindly to its environmental impact isn’t sustainable. An organization can utilize the ISO 14001 Environmental Management System as a foundation to address its environmental issues. ISO 14001 specifies requirements that an organization can use, to enhance its environmental performance. Click to learn more about ISO 14001. A sustainable organization must also be concerned about environmental issues.

Social

A sustainable organization understands that social issues have a tremendous impact on business operations, profits and therefore investments. Social issues include: diversity, human rights, consumer protection and animal welfare. I like to refer to this as living people and things. Many of these social issues were experienced during COVID-19 and impacted business operations, profits and therefore investments. Organizations perform best in a stable social environment that put living people and things over profits. It’s understood that profitability is a priority, but profits should never take a higher priority over life. Organizations that embrace this core value are more sustainable and profitable. An organization seeking to be more socially responsible can utilize ISO 26000 Guidance on Social Responsibility. ISO 26000 provides guidance to all types of organizations, regardless of their size or location. ISO 26000 is intended to assist organizations in contributing to its sustainable development, going beyond legal compliance. Click to learn more about ISO 26000.  Social awareness is critical for the sustainability of any organization.

Governance

Corporate governance is the structures, processes and procedures an organization implements to direct and control its operations. Investors want assurance that organizations they invest in have sound structures and processes in place and are not just flying by the seat of their pants. Organizations without structures and processes are not sustainable. Organizations that had structures and processes in place faired better during COVID-19 than organizations that did not have structures, processes and procedures. Corporate governance includes management structure, employee relations, compensation structures, established processes and procedures. ISO 37000 provides guidance for the governance of organizations. ISO 37000 helps organizations make decisions based on the organization’s ethos, culture, norms, practices, behaviors, structures and processes. Good governance creates a clear purpose that delivers long-term and sustainable value. Click to learn more about ISO 37000.

Conclusion

In conclusion, ESG is focused on ensuring organizations are sustainable for all interested parties. Although the implementation of ESG is currently being driven by public and private investment firms, owners of organizations should consider ESG as part of its business strategy. If your organization needs assistance integrating ESG into its business strategy, our ESG consultants can assist you today. You may contact us through our website or give us a call at 832-326-9796. We look forward to helping your organization become sustainable in this ever-changing business environment.

Author

Oscar Combs | Senior Consultant

Oscar Combs, Senior Consultant of The ISO 9001 Group, a management consulting, auditing and training firm based in Houston, Texas.  Oscar has over 27 years of experience working with management systems.  Oscar has worked with clients throughout North America, South America, Europe, The Middle East, Asia and Africa helping companies manage risk and improve their business operations.  Oscar holds an MBA from the University of Houston.  He is certified an IACET Management System Consultant and Lead Auditor. Oscar is also a Senior Member of the American Society for Quality and has served as the Programs Committee Chair for ASQ’s Houston Chapter 1405.