April 1, 2022 | By Ray Dunkle, CPA, CFE, CGMA
Stakeholders are becoming increasingly interested in companies that value ethical business practices. From employees to investors, people are looking for businesses that adhere to strict environmental, social, and governance (ESG) criteria. In the following, we will explore the importance of an ESG program as well as how to strengthen your program with the help of your employee hotline.
For those unfamiliar, the Balance article, “What are Environmental, Social, and Governance (ESG) Criteria?” by Paul Nolan explains, “The ESG screening process identifies companies that have built sound environmental practices, strong social responsibility tenets, and ethical governance initiatives into their corporate policies and everyday operations.” Let’s examine the primary considerations for each of the three components of ESG.
Environmental Considerations
Environmental considerations are focused on a company’s impact on the natural environment. Does the company use sustainable practices? As we become increasingly aware of how human activity harms the environment, stakeholders are holding businesses accountable for adopting eco-friendly practices.
Social Considerations
Social considerations include a company’s business relationships and treatment of its employees, customers, investors, and community. For example, if the company claims to value equitable practices, does it promote employee health and safety plus diversity and inclusion? People want to support companies whose social practices align with their values.
Governance Considerations
Governance considerations are focused on how a company is led. Does the company promote transparency and take preventative measures to combat unethical/illegal practices? Stakeholders look for companies whose commitment to doing what is right starts at the top.
The Benefits of ESG
Having a strong ESG program comes with significant benefits.
The Investopedia news article, “Demand for ESG Investments Soars Emerging From COVID-19 Pandemic,” by Kara Greenberg reports that in a survey conducted by Investopedia and Treehugger, 67% of respondents claimed that over the next five years they plan to invest more in companies with strong ESG initiatives.
According to the 2020 Marsh & McLennan Advantage Insights report, “ESG as a Workforce Strategy,” employers with the highest employee satisfaction and attractiveness to talent ratings had significantly higher ESG scores than their peers, which indicates that a commitment to ESG criteria may help organizations in recruiting and retaining talented employees.
ESG and Your Hotline
By now, forward-thinking, and proactive employers know the importance of an independent, and well-publicized, hotline: 1) detect issues early, 2) deter unethical and unsafe behavior, and 3) strengthen your affirmative defense.
Given the numerous benefits of following ESG criteria, how can you use your employee hotline to strengthen your ESG program? Simply put, ESG programs and employee hotlines serve a common purpose: to promote ethical workplace practices. Given that employees value working for companies with high ESG rankings, empowering them to play a critical role in strengthening your ESG program through their ability to speak up, anonymously or not, will allow you to demonstrate that their input is valued and encouraged. It also allows you to learn from the thoughtful considerations of those who know your organization best: your employees.
Ray Dunkle is Founder and President of Red Flag Reporting, an Akron, Ohio based company providing employee safety and ethics hotline services to clients in over 60 countries. He founded Red Flag Reporting as Partner in charge of forensic accounting for a multi-state CPA firm. Ray holds several certifications including Certified Public Accountant, Certified Fraud Examiner, and Certified in Financial Forensics. His occupational and community efforts have earned several awards including the “Dr. Frank L. Simonetti Outstanding Professional Alumni Award” from the University of Akron’s College of Business Administration. His efforts in helping to protect organizations and their people led to Ray being the lead author of the book “Corporate Fraud: The Executive’s Survival Guide” and to being quoted in numerous news outlets including The New York Times.
