I have been seeing more and more discussion of how investors are taking environmental, social and governance aspects, also known as ESG, into account in their investment decisions. As a result, more companies are putting in place policies and goals in these areas. One of the more recent environmental examples that interested me is that of Amazon, which has committed to being carbon neutral by 2040 through sustainable process improvements, recycled materials, investments in electrification and renewable energy initiatives.
What I found most interesting here is that I tend to view Amazon as a company that focuses on customer service and convenience at the expense of other factors, such as efficiency and profitability, so it is notable that it has chosen to focus on its impact on climate change. This is likely to create tradeoffs and conflicts with certain Amazon trademarks, such as free one-day shipping and a reputation for low prices overall.
This brings me back to our industry and the concept that, despite the fact that our businesses largely provide products for fossil-fueled vehicles, we can focus more on ESG concepts and incorporate them into our business decisions and marketing. This column explores some ways in which your company might do this.
The first question you might ask about this is, why? Here are some rationales:
ESG investing is on the rise. According to financial services company State Street Global Advisors, 80 percent of institutions now incorporate an ESG component within their investment strategies.
Focus on ESG areas is important to Millennial and younger people and is likely to become a greater issue over time in your ability to hire employees.
Focus on ESG areas should lead to longer-term sustainability of the company and mitigate certain risks that may have been unaddressed previously.
Your customers are increasingly likely over time to ask about ESG issues and your strategies in these areas; if you are ahead in these areas, it could be a competitive advantage.
Lets start with the environmental area, which you may find hardest to think about in our industry. If you are a large global player, it is likely you are already focused on this area and have personnel dedicated to improving your environmental performance, including development of more efficient products. If you are a smaller, more regional player, perhaps this is an area you havent tackled yet.
I suggest you start by assembling a team to discuss what data you need to collect and metrics you may want to track. I would try to get data by plant and facility on such things as energy type and usage, water usage, effluent quantities and type, impact on air quality, solid waste quantity and type, and the like. I would also look upstream and downstream of your facilities. For example, pull together data on shipments in and out of your facilities by number and mode. If you want to get even deeper into this, you could look at data on sales by package type.
Once you have assembled the data, enlist a multi-disciplinary team to address these questions:
How can I reduce energy usage in my facilities? Can I shift usage to more environmentally friendly types of energy? Things to consider might be more efficient lighting, solar panels, working from home, and newer, more efficient plant equipment. Be sure to discuss options with your utility suppliers as well.
How can I reduce water usage and waste generation?
How can I improve the energy efficiency of my supply chain?
How can I improve the energy efficiency of my packaging? Are there recyclable options? How can I reduce the use of packaging overall?
For the latter two questions engage in discussions with your rail and trucking companies, as well as with your suppliers, to understand their plans and ideas. I believe that some focus on these areas in your discussions with suppliers will lead to improvements or perhaps sway your choice of suppliers or modes of transport.
In addition, you will likely find that your employees are eager to contribute and participate in this area; in fact, employee mindset and behavior are great assets in the pursuit of improved environmental performance. Once you understand more about your current performance and options to improve, set improvement targets and incorporate these into employee goals and perhaps into incentive pay of some type.
The S in ESG pertains to social issues, such as your companys relationships with employees, suppliers, customers and communities. You have no doubt been focusing on these issues for a long time and can find many things in your current portfolio of policies and practices that relate to your social performance. Here are some things to consider in this area:
Are there some aspects of our company culture which, if changed, would improve employee or customer satisfaction and company performance?
Is our company diverse? Is our management team diverse? Have our statistics in these areas improved over time?
Are we paying our employees fairly? Are our policies fair and in line with the times?
How is our relationship with our local community?
The G in ESG pertains to governance and has to do with company standards with regard to leadership, risk controls and shareholder rights. You may want to ask yourself questions such as these:
Are we properly emphasizing and training employees on ethical business practices? Do we have processes in place to measure this? Are the consequences for deviating from our practices appropriately used?
Do employees at all levels understand rules related to employee fraternization? There have been numerous CEOs and other high-level employees fired last year for behavior violating company policy in this area.
How is our company utilizing the audit process to provide assurance on the effectiveness of our governance, internal control and risk assessment processes? Is follow-up effective?
I am sure you are doing many of these things well already. To the extent that this is the case, I would emphasize these areas on the company website and marketing materials. Incorporating ESG thinking into your decisions should contribute to your business sustainability and its attractiveness to stakeholders.
Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. Email her at saralefcourt@gmail.com or phone (908) 400-5210.