So what is Environment Social Governance and why is it important?

Recently, I had the great pleasure of working with a Client who asked me to support them in an Environment Social Governance (ESG) assessment for an Investment Organisation.

To say it was strange how we connected would be an understatement. I mean….me an Operations hardened Health, Safety and Environmental (HSE) chap supporting Investment bankers!! Ah, but you see the Client said they were realists and they wanted someone on the team who would contribute based on operational experience. Very flattering…

So, what is Environment Social Governance (ESG)?

If you are a small time investor like me, perhaps you use Investopedia? It really is a superb resource and they have a page on ESG. Let me share some of their words below about ESG and Criteria 😃

Environmental, Social and Governance (ESG) Criteria is a set of standards for a company’s operations that socially conscious investors use to screen investments.

  • Environmental criteria look at how a company performs as a steward of the natural environment.
  • Social criteria examine how a company manages relationships with its employees, suppliers, customers and the communities where it operates.
  • Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

So, let’s flip this.

If you were an Investor (not interested in “asset stripping“) and you wanted to buy Company XYZ, what would you be looking for as Key Performance Indicators (KPI)?

Ok, so you look at all the Financial and Production metrics but it’s also important to look at the Social and HSE metrics.

Why…?

Unless Company XYZ is run by robots, as humans we are all different and whilst this is amazing, it also has challenges. Behaviours, Habits, Leadership, Culture etc all make up the “DNA” of an Organisation. I am sure you have heard that expression a lot….apologies. 

As an Investor, you want to make sure that you’re going to get your Return on Investment (ROI) and in this context, I would make sure that there are KPIs, they are meaningful and showing trends in the right direction.

In a nutshell:

The visit and reviews of 3 large companies went very well and many lessons learnt plus shared. Corrective Action Plans (CAP) are now pragmatic and not “pie in the sky”. As much as I would like to take the credit for all this that would be very unfair.

The real credit goes to my Client who had the vision of adding a person to the team who can singularly focus on forward motion for improvements in Social and HSE KPI.

Check out my posts and articles on Key Performance Indicators (KPI).

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