The Importance of Trust, Transparency and ESG for Businesses Right Now
ESG (environmental, social, governance) is hardly a new term, but as the importance of social responsibility deepens, ESG investing is becoming more and more common. According to Deloitte, ESG-mandated assets could make up almost $35 trillion—that would be half of all managed assets in America—by 2025. But what exactly is ESG?
“It’s very simply an evaluative framework that allows an organization, investors [and] other stakeholders to really understand and evaluate impacts and dependencies of businesses on the environment and society around them,” Kristen Sullivan, Partner and DTTL Americas Region Sustainability Services Leader at Deloitte & Touche LLP, said at our second session of Thriving in the New Business Landscape, a three-part live online series offering insights from Deloitte Private professionals, entrepreneurs and business leaders as investors, privately owned businesses and families of worth look to reset into a “new normal.”
Understanding ESG and what stakeholders and customers want is imperative for your company.
“When you broaden the conversation to that’s the way companies are being evaluated and valued by stakeholders, the capital markets in particular, translating that to the way companies look at really driving their strategies in a way that contemplates a broader universe of stakeholders, the needs of those stakeholders,” Sullivan said. “How is the business model today? How is the strategy going forward, considering this continuous pattern of disruptors from an environmental, societal standpoint? How does the strategy contemplate your customers today, but [also] your customers of tomorrow [and] their needs?”
This month marks the 50th anniversary of Milton Friedman’s renowned article on the purpose of a corporation, something Diana Propper de Callejon, managing director at Cranemere, Inc., noted, along with the Business Roundtable having released its statement on the purpose of a corporation being to create value for all stakeholders around this time last year.
“The whole idea of purpose, and what the purpose of a corporation is, is very much in debate and being thought about very deeply, the way we think about it, and I think it really is about looking more at how companies are taking a stakeholder-based approach to how they operate and how they make decisions,” Propper de Callejon said. “And secondly, what is the intentionality of the company to produce meaningful and measurable social, environmental impact.”
With this shift toward impactful business and creating value for all comes the need for companies to be able to be transparent and build trust with their clients or consumers. This is something J. Donald Fancher, Principal, Deloitte Risk & Financial Advisory, Global Leader at Deloitte Forensic, Deloitte Financial Advisory Services LLP, spoke to.
“One of the things about trust is transparency. And in this new environment, how can you enhance transparency when you’re not face to face?” Fancher said. “We’re human beings. We’re built to interact with one another; [that’s] how our societies have been developed. And so how do you create that level of transparency? Trust is so endemic to everything that we’re doing right now because nobody knows…can I go back to the office? Can I get on an airplane? You know, there’s so many questions people have, and the ability to create trust through whatever means. And I think transparency is one of the most important ways to do that. And our own research at Deloitte with our human experience team has shown that while individuals may state reliability, for example, of a product is one of the most important things that they value, the reality is when you begin to do the analytics around buying patterns, transparency tops all of those. And so I think for any organization, creating a level of transparency with immense amounts of communication, making people aware of the challenges, making people aware that you as leaders are not necessarily completely sure of everything that you need to do or that you can do. But be open and honest about that. And I think that kind of discussion with whomever your stakeholders are is really, really important.”