The Occupational Safety and Health Administration (OSHA) signed the Occupational Safety and Health Act, which oversees workplace safety, into law in 1970. Hard-fought legislation and recorded efforts to improve worker safety can be traced back to the 1700s. It wasn’t until the post–Civil War era that workplace safety came into clearer focus. As the industrial workforce grew, so did the abhorrent conditions many faced in the factories, mills, and mines that produced the products and resources needed to move America forward.
Pushback against improving working conditions was fierce. Industry argued over what was considered good science, shifted the narrative from health to economic impact, and aggressively resisted change. Decades were wasted, as were millions of dollars, and all the while, workers died.
Thanks to steadfast advocacy and the courage of early adopters of workplace change, safety is now a priority throughout all aspects of industry. And as an added bonus, improvements to how products are manufactured and how services are performed introduced new efficiencies that led to increased profits.
Today, we’re seeing history repeat itself with environmental, social, and governance (ESG) concerns. While studies show that ESG improves productivity and profitability, millions of dollars are being spent stoking fears of change.
In the United States, Wall Street has made considerable strides in combining financial returns and ESG performance — a practice that is commonplace in Europe. After all, ESG concerns go hand-in-hand with financial concerns. Despite that, myriad factions work to undercut its benefits. Most recently, an array of governors introduced legislation to ban state entities from holding ESG funds in its government employee retirement portfolios, despite some of those funds outperforming traditional funds.
Next, while sustainability is a pillar of ESG, an increased emphasis on renewable energy is not the end to fossil fuels. In fact, the transition toward greener energy has presented new opportunities. Data from the International Energy Administration (IEA) show the supply of low-emissions gases, such as hydrogen, synthetic methane, biogas, and biomethane, rises from 2 exajoule (EJ) in 2020 to 17 EJ in 2030 and 50 EJ in 2050. In addition, the increase of gaseous hydrogen production between 2020 and 2030 in the IEA’s net-zero emissions scenario 2050 is twice as fast as the fastest 10-year increase in shale gas production in the United States.
It is important to note that, while ESG has seen a rise in popularity in recent years and has suddenly become the target of intense pushback, it is not a new concept. The term ESG originated in 2004 in a report from the UN Global Compact Initiative titled, “Who Cares Wins.”
“To support the growth of sustainable capital flows, IFC [International Finance Corp.] advisory services seek to influence, support, and enable capital market stakeholders to better integrate ESG factors into capital allocation and portfolio management processes, using IFC’s own investment practices as a model.”
Today, ESG impacts all company stakeholders — employees, board members, customers, suppliers, and distributors. It has had a positive impact across myriad benchmarks, none more important to company shareholders than long-term profitability. In its simplest form, ESG involves conducting business that provides long-term value without producing negative effects on the environment or society.
A good ESG strategy includes efforts toward reducing a company’s carbon footprint, encouraging the introduction of employee wellness programs, engaging in ethical business practices, and other common-sense practices. Ultimately, a company’s ESG strategy creates investor confidence, earns customer loyalty, and improves both asset management and financial performance. Studies have shown that businesses that properly integrate the principles of ESG benefit from lower energy consumption, reduced waste, greater employee retention, and reduction in operational costs.
History is repeating. In the years to come, today’s ESG backlash will be looked at in the same light as early the rejections of workplace safety. What side of history will your company be on? One that accepts the challenge to do right by its employees, community, and planet, or one that is resistant to improved practices, greater efficiencies, and change? “Well this is how we’ve always done it,” doesn’t mean we can’t do better moving forward.
