Driving Sustainable ESG: Insights from Industry Experts

ESG (Environmental, Social, and Governance) factors have become a prominent lens through which companies' efforts are evaluated beyond profitability. As ESG considerations reshape corporate priorities, it is crucial to understand how to make ESG sustainable in the long term. This article highlights key insights from a panel of ESG leaders, offering suggestions for companies, investors, and policymakers to support the future strength of ESG.

Accelerating Progress towards Accountable Capitalism

Viviana Alvarez, former head of sustainability and corporate strategy at Unilever North America, emphasizes the need to reshape the economy and prioritize meaningful reform across all industries. Stress-testing portfolios to ensure the ability to produce products or services in the coming years is essential. Recognizing the fragilities and dependencies of commodities is crucial for driving rapid change and proactive responses.

The Importance of Governance

Jennifer Grancio, CEO of Engine No. 1, emphasizes the significance of corporate governance in ESG. While companies like Tesla excel in environmental impact, governance can sometimes fall short. Investors should thoroughly assess each company's governance practices, as it plays a critical role in determining long-term value and bottom-line impact.

Effective ESG Integration within Companies

Monica Dimitracopoulos, corporate sustainability leader at EY Americas, identifies five key elements for successful ESG integration within companies. These include deepening understanding of stakeholder expectations, establishing proper governance at the board and executive levels, embedding ESG as a lens for strategic priorities, operationalizing initiatives with appropriate capital allocation, and maintaining transparent reporting and data generation.

Driving Change from the Investor Side

To accelerate change from the investor side, it is crucial to understand how climate risks impact financial markets and corporate strategies. Arthur van Benthem, faculty co-director of the Wharton Climate Center, highlights the real impact of climate-risk pricing. For instance, research shows that houses in high flood risk areas transact at lower prices compared to similar houses in low flood risk areas. Understanding these dynamics ensures preparedness and effective decision-making.

Making ESG Sustainable

Dr. Henisz concludes by emphasizing the need for experimentation and integration of ESG into the core of business operations. System-level thinking, driven by individuals with a sense of purpose, is necessary to navigate the complexities of ESG. Recognizing the role of externalities and understanding their impact within the broader system is crucial for sustainable ESG practices. In summary, the insights from the panel discussion shed light on the path to driving sustainable ESG. Reshaping the economy, prioritizing governance, integrating ESG within companies, understanding climate risks, and embedding ESG into the core of business thinking are key steps towards ensuring the long-term success and impact of ESG initiatives.

Implications of Sustainable ESG for the US Business Market and New Companies

The rise of ESG (Environmental, Social, and Governance) factors in business evaluation has significant implications for the US business market and newly formed companies. As these factors become more prominent, businesses are compelled to rethink their priorities and strategies. This shift towards sustainable ESG practices, as highlighted by industry experts, can reshape the business landscape.

Reshaping the Economy

Viviana Alvarez's emphasis on reshaping the economy and implementing meaningful reform across all industries suggests a new business paradigm. For new companies, this means acknowledging the vulnerabilities and dependencies of commodities and proactively responding to these challenges. This approach could lead to innovative solutions that not only drive profitability but also contribute to sustainable development.

Emphasizing Governance

The importance of corporate governance in ESG, as emphasized by Jennifer Grancio, suggests that new companies must prioritize good governance practices. While profitability and environmental impact are crucial, robust governance practices can significantly influence long-term value and bottom-line impact.

Integrating ESG within Companies

Monica Dimitracopoulos's insights on successful ESG integration underscore the need for new companies to understand stakeholder expectations, establish proper governance, embed ESG in strategic priorities, operationalize initiatives, and maintain transparent reporting. These steps can help new businesses align their operations with sustainable ESG practices. In conclusion, the drive towards sustainable ESG practices can significantly impact the US business market and new companies. By reshaping the economy, prioritizing governance, integrating ESG, understanding climate risks, and embedding ESG into core business operations, new companies can ensure their long-term success and contribute to sustainable development.
Original Story By: Kellogg School of Management at Northwestern University
Originally Published at: https://globalyouth.wharton.upenn.edu/articles/business/how-do-we-make-esg-sustainable/

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