Environmental, Social and Governance (ESG) is a hot topic in business circles. For more information on the basics of ESG, click here.
Valley Bank has made ESG a priority and has dedicated resources and leadership toward the effort, including convening an ESG Council. As a regional organization itself, Valley understands the issues small- and medium-sized businesses face in assuming new initiatives, such as a renewed focus on ESG principles. We spoke with some members of Valley’s ESG Council to glean insight on how SMBs can embrace ESG with an eye toward relevant, cost-effective steps. Listen in on their perspective on a number of common questions related to ESG initiatives.
1. How can a company decide whether it should focus on ESG?
What many organizations don’t grasp is the fact that they have an ESG impact whether they are managing it or not. That’s why company management needs to return to their mission and values, which will help provide a roadmap about the areas where they should focus their efforts and showcase their initiatives and progress.
Companies also should take into account customer and employee feedback and analyze what these stakeholders are asking for in order to inspire engagement and loyalty. Companies never should overlook the repational value of ESG.
2. If a company is just starting out, what types of initiatives should they consider first?
As you’re getting started, it might be helpful to invert “ESG” to “GSE.” That’s because the governance component is what sets the structure for the rest. At your foundation, you have to make sure you’re doing business conscientiously by following rules and regulations, such as those related to employment and your local municipality and building rules. Then you can assess where you’re currently already having an impact and can continue to concentrate, then broaden responsibility into other areas. For example, perhaps you have made great strides on the “E” side and it’s the “S” piece you need to focus on.
Another strategy is to take what you could consider the “path of least resistance.” Think about your business purpose and how it can lead you toward providing more conscientious services and developing products in a more conscientious way. This is a crucial step Valley Bank took. We started by focusing on the work we already did related to the Community Reinvestment Act (CRA) and made it the cornerstone of our Corporate Social Responsibility (CSR) initiative. As a community bank, first and foremost we want to take care of people, and now we are advancing environmental stewardship and other goals as well.
Companies also should focus on what they can control. If you are a small plumber, you don’t necessarily need to jump into advocacy on a national level, but you can manage other aspects such as assessing how you operate your plumbing business; how you schedule your service calls; and what types of businesses, communities and families you have as your clients.
We encourage companies to reach out to their banker who can give advice on how to prioritize for the most impact.
3. How can companies measure impact?
Impact can be categorized in different ways. One important and potentially overlooked measure is goodwill and the reputational value of intangible elements like community service. You can balance that with other measurable actions and activities, such as dollars saved or dollars invested in a program.
One measurable metric is your carbon footprint — for example, upgrading your heating or manufacturing systems, which minimizes negative impacts on the environment and can also save money as you reduce your energy usage.
Also remember you don’t have to compare yourself to huge companies, but instead you can differentiate your impact among your own peers. For example you can outcompete other small plumbing companies by using low-energy systems or offering pro bono services to low-income families.
The key is to align actions with words. Small businesses are an integral part of the community, which is a distinct advantage. For us at Valley, we focus on being authentic about the work we’re doing in our communities, and customers appreciate that.
4. How can companies spur employee engagement related to ESG?
A commitment to ESG has to start at the top and then flow down by involving your team. If you allow them to have a voice in the formation of your ESG program, they can help establish priorities. We’re all more apt to embrace and implement what’s important to us and where we feel ownership. While there needs to be senior management input as well, allowing employees to guide and shape the program is the best way for them to feel empowered and engaged and understand the benefits.
5. How can companies track the ROI of their ESG measures?
All businesses have to balance purpose and profit, and ROI is extremely important for small businesses because they have fewer resources and a smaller buffer for mis-allocating funds.
However, ROI may come through actions that are qualitative rather than quantitative. For example, take a volunteering initiative. Perhaps you focus on being involved in groups or areas you believe will lead to business generation. By tracking what connections were made, you might realize you were able to build connections that ultimately grew your top-line revenue via an indirect channel like cleaning up a river.
We also find ESG activities are a great way to build industry partnerships because they always come from a perspective of cooperation rather than competition. For example, we have participated in events with fellow financial services sustainability officers to share woes and wins, and it has strengthened our knowledge and also standing in the industry. You can make your small business part of a large network and leverage that power to do even more. Then everyone wins together.
Making ESG your own
While “ESG” has become mainstream, it has its roots in basic business practices. Often all it takes is a reframe of an existing process to make it more actionable and relevant to your ESG goals. Through small steps, we can all make a big difference.
We invite you to find out more about Valley Bank’s ESG efforts here, and visit our Learning Center for more insight on building and growing your business.