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Investing in ESG - Investing in Business Impact

“ESG values are not just a set of indicators for mandatory reporting but form a company’s overall strategy that couples moral, social and environmental goals with real economic and business impact” Orly Glick, Co-founder and CEO of ESGgo

ESG should be a part of any company’s agenda. Even startups, from early stage through growth to pre-IPO preparedness to becoming public or being acquired, all have to take into account the ESG considerations in their decision making processes. Investors, acquirers and the different stakeholders in the company nowadays take ESG considerations and companies’ actions as a part of their decision making. 

This is also the force that drove the global credit rating agencies to start analyzing and providing ESG scores for public companies, targeting investors who are basing a part of their decision making process on these ratings, resulting with a buy or sell of these stocks. This is also the reason studies now show a correlation between the stock price of a company to its ESG efforts and why a third of the S&P 500 companies now base their leadership incentive packages on at least one ESG parameter. As sustainability and social impact are now getting more and more into the core of the discussion in capital markets worldwide, there is a growing need for an easy but precise data retrieval process, for ESG data standardization and analysis together with benchmarking abilities, all of which are costly and resource heavy for companies. 

“This is not a ‘nice to have’ anymore but a moral obligation that when planned carefully and executed properly, could lead to real business impact” says Orly Glick, Co-founder and CEO of ESGgo. ESG encompasses many data points that reside in different departments and systems - HR, IT, operations etc. “Different rating agencies match companies against different criteria, so even if the data collection is possible, it’s challenging to standardize it and translate it to the proper data points. It’s like comparing apples with pears, it is also challenging to convert the data into concrete action items, set goals and KPI’s and properly couple it together with the business core strategy”. 

The ESGgo product is in fact an enterprise tool that was developed with that mindset - helping companies solve these exact challenges: understanding which ESG data points need to be collected, organizing the data in the form of measurable KPI’s according to the different standards and frameworks, featuring benchmarks to industry average and peers and ultimately producing the required reports. According to Glick, it is a ‘one stop shop’ data software tool for ESG monitoring, analyzing and AI based optimization that can alleviate “taxing months of manual data collecting within the organization and standardization of the data'' she explains. 

“The analysis is both internal and external. It provides you with a mirror into your current ESG state with the ability to understand how the world sees you.” 

The growing importance of ESG monitoring and reporting in the business world, can be demonstrated by the term coined by Larry Fink, CEO of Blackrock- ‘Stakeholder Capitalism’. The meaning of this, according to Glick, is that companies that are competing for market share and for the attention of consumers, investors and employees, will emerge as winners if they adopt sustainable and responsible behavior. “90% of gen Z’s will switch one product for another if the company follows environmental or social principles” she explains. In addition, studies show that there is a direct correlation between employee volunteering to their satisfaction in the workplace.

In addition to stakeholders opinion, legislators around the world are moving towards obligatory reporting instead of voluntary reporting. In Europe there is extended regulation that binds investors to report the ESG of their portfolios. “It is fantastic as it leads to a positive change of companies behavior in a sense that the stock will be bought more according to the way they treat their employees, society and our environment and natural resources”. The SEC just last month voted 3:1 to propose new rules that, if adopted, would require public companies to provide audited financial statements containing different ESG disclosures. “The expectation is that, similar to Europe, ESG reporting and monitoring won’t be voluntary. This should become the norm in the US and the whole world and transparency is key” she says. 

Glick distills a number of significant criteria for young companies who wish to take their first steps in their ESG journey. “Early stage companies feel they can’t afford to dedicate resources for this effort and this is a mistake” she explains. “In larger companies we see Directors of ESG, VP’s of ESG or similar executives assigned to this area. In the case of early stage companies it usually is assigned to someone who’s not a subject matter expert or falls between the responsibility of different departments such as HR, IR or legal and when the board or venture capital investors or institutional investors request ESG reports or specific data, the early stage companies find it hard to comply”.  This is going to be a part of the decision making process for M&A and for sales. As a vendor to enterprise companies startups will have to assess their ESG as well, no matter how small you are”.

More than anything, Glick recommends creating a genuine commitment to change within the company. And Glick sets a good example for what she preaches: half of the employees in the company she leads are women in tech and management positions. “A promise to reduce your carbon footprint is one thing, a genuine commitment to change is another. As CEO, a mother and the only woman in the room for most of my career, I know how crucial this commitment to change is, and I can see the results”.

Translation from article by The Marker