In the spirit of full disclosure, and as some readers of our Risk and Compliance Matters blog may already know, NAVEX Global has recently acquired CSRware, a pioneer in the Environmental, Social & Governance (ESG) reporting market.
It is cause for celebration when corporate responsibility and sound business decisions are perfectly aligned – and that is where we find ourselves today with respect to environmental, social and governance (ESG) awareness and reporting. In light of the increasingly clear social and business benefits, ESG has recently become a focus for many organizations. Not incidentally, investors are incorporating ESG performance into their valuation calculus. Until recently, ESG metrics were often considered too esoteric to be reliably quantified and too difficult to track manually. Reporting on ESG performance, if done at all, took a backseat to more traditional financial measures. But that is changing.
Now there is a growing understanding that positive ESG measures are associated with better overall business performance. Forward-thinking organizations, many of them already NAVEX Global customers, know ESG impacts their overall risk profile. The challenge is how to collect and analyze ESG data with the same rigor as other risk and compliance data. This customer challenge was one of the drivers behind our acquisition of CSRware.
It’s natural that ESG metrics should be considered in the context of an organization’s broader risk and compliance program. Progressive companies recognize that ESG-related risks carry the potential to impact share price, company reputation, regulatory exposure and employee engagement; it is a risk area that warrants board-level review. Active ESG management and reporting helps organizations address business risks related to climate change, sustainability, data privacy, workforce gender composition, company culture, human rights, anti-bribery and anti-corruption efforts, and other key areas.
With this new lens to reveal both risk and opportunity, it should come as a no surprise that commercial and investment banks are starting to ask about ESG risks when evaluating the credit worthiness of corporate customers. In fact, investors of all types recognize that ESG-related issues are critical to a company’s financial performance. Firms like BlackRock, Putnam and Vanguard have all made commitments to invest in companies with strong ESG performance because they bring less risk and more resilience to their portfolios. Impact investing index funds have been growing in popularity and have now topped $250 billion. According to Morningstar, these investments have doubled over the past three years and the U.S. market now accounts for 20% of impact investing total assets.
It’s no wonder that ESG is in the spotlight – from boardroom conversations to investment portfolios, and within leadership teams around the world. Social justice movements such as #BlackLivesMatter, demands for gender equality and combating climate change, and others reveal a new facet of customer expectations. These movements have also shown that businesses have many opportunities to do better. Our customers and other constituencies care deeply about these issues and expect more from companies in exchange for their loyalty. Embracing ESG metrics as part of a truly comprehensive risk and compliance program – and transparently reporting on the results – is a good place to start.
CSRware’s SaaS-based solution helps corporations aggregate, calculate and report on ESG data, making it easier for companies to report on meaningful metrics. To learn more, visit www.csrware.com