How companies spell success with focus on ESG: Environmental, Social and Governance factors
By Leslie D. Green | Crain’s Detroit Business | Published on October 29, 2018
Improving the financial life of an enterprise extends beyond investing in a particular stock or ensuring a startup gets its creation into the hands of a certain manufacturer so it can become a hit with consumers.
Those are short-term strategies.
Rather, stakeholders — investors, employees, customers, talent acquisition teams, community, supply chain, regulators, and so on — are making it increasingly clear that environmental, social and governance (ESG) dynamics play a significant role in their appraisal of a company.
“ESG demonstrates the kind of company we are, our ethics and our values. It helps us earn and maintain trust and accountability,” said Matt Elliott, Michigan Market president and region executive at Bank of America Merrill Lynch.
Elliott recently moderated a panel of metro Detroit business leaders as part of a business event highlighting the benefits of ESG. The event, held at the Waterview Loft at Port Detroit, was sponsored by Bank of America Merrill Lynch and powered by Crain Content Studio.
Elliott said there’s no tradeoff between ESG and business performance because companies seeking long-term sustainability can do well by doing good. Stakeholders are investing in, purchasing from and seeking to work for businesses that respond well to environmental changes, health and safety requirements, harassment in the workplace, diversity among board members and community needs.
“By using ESG, you’re allowed to bring your humanity to management and to the office,” Elliott added. “It’s always about the people, so if you can’t bring your whole self to the office, to the shop or wherever, how are you ever going to bring all of your performance?”
Jackie VanderBrug, managing director of Global Portfolio Solutions at Bank of America and keynote speaker of the event, concurred with Elliott.
“ESG gives a sense of the DNA of a firm. It is a necessity,” VanderBrug said. Stakeholders want to know what a company is doing in terms of energy management (environment), how employers plan to win the war for talent and make employees feel valued (social), and about board diversity and board climate competence (governance).
VanderBrug said positive results derive from constructing a business focused on ESG factors such as:
- building a highly competent, competitive and diverse workplace;
- developing environmentally maintainable practices; and
- socially advancing not only employees and customers but the surrounding community as well.
Take it from the top
Oftentimes, companies put structured ESG strategies in place that don’t resonate with the people, said Betsy Meter, Michigan managing partner and U.S. accounting change leader for KPMG LLP. Instead, successful ESG initiatives work their way from the top executive to the lowest ranking employee.
“You have governance throughout your organization, so it really needs to transcend,” Meter said. “When you don’t have leaders who aren’t authentic, it’s hard for the rest of the organization to really buy into what the mission is. It can be the supporting social issues. It can be whatever that organization is faced with, but if you don’t have it throughout the organization, it can be extremely challenging.”
As a result, boards are surveying employees to understand whether their governance is what they believe it should be and if the corporate culture is as they assume it is.
“Boards hear from management, but they don’t get down to the level of the employees to say, ‘Is that really the existing culture within that organization?’ A lot of times, problems happening at a company are at that mid-management level. And I think boards and organizations are starting to use surveys more powerfully to understand how organizations are really governing themselves.”
KPMG found success in asking its employees their thoughts.
About seven years ago, the audit firm created a campaign to make sure staff felt connected. The Purpose Campaign included asking employees what their purpose was. The incentive for getting at least 10,000 employee submissions was two extra days off work during Christmas season.
“They took it very personally,” Meter said. “We had 40,000 submissions. A lot of people submitted twice. We had teams submit. You always think, ‘what is the purpose of my job and why is that important?’ Until we went through that exercise, I guess I didn’t realize how important it was.
“Purpose is a very individual thing and how you come to work every day and how you serve your community, your clients, the people that work for you and the people you work for is individual. But, actually seeing people articulate it was an amazing experience.”
Meter said it’s critical that organizations take the time to look at individual people and their purpose, to weave that into their culture and make it part of the fabric of the company.
While the campaign covered social and governance initiatives internally, KPMG also researched what it wanted to support externally. Most of those initiatives turned out to focus on early childhood education through talent development.
“We launched a program with Families for Literacy around maybe 12 or 13 years ago, and it became one of our cornerstones,” Meter said. “Obviously, we give to a ton of different organizations in work and schools and in the community, but this is one that’s nationwide. I think we’ve given around 400,000 books to young children in Detroit. We get 40 to 60 volunteers at each one of the schools where we read.”
Families for Literacy is dedicated to improving literacy at early ages in the school system.
“Our people are so passionate about these kids. I’m telling you, it’s one of the best experiences. These kindergarteners crawl up in your lap, and they want to read with you,” Meter said.
She added that the social aspect of a business not only benefits the community but gives employees greater purpose.
“I think we should look at millennials,” Meter said. “Social media has been in their world since Day One. As they read every article and they see things posted by their friends, it really is in the fabric of what they believe is important. So as organizations … in the race to get and retain good talent, you have to be providing a real purpose to employees today.”
Do unto others
When the Great Recession forced thousands of people out of their jobs, DTE Energy’s then-COO Gerry Anderson, who is now CEO, inspired staff to craft a strategy benefiting employees and the community alike.
“Gerry implored us to really pull together and buckle down to keep the lights on and the hearths warm for our customers,” said Nancy Moody, vice president of Public Affairs for DTE Energy.
Their goal was to use Continuous Improvement (Lean Six Sigma-style) tools to ensure they could keep prices from rising and help those they served through volunteerism efforts and the DTE Foundation.
“If we could do all this while buckling our belts a little tighter, we wouldn’t have to lay off employees. It worked! We came into 2010 in good shape — with hearts filled with gratitude for the work we accomplished under stressed, lean budgeting. We clearly experienced ‘purpose’ in helping those we served,” Moody said. “Our entire ‘Force for Growth’ strategy began that way.’”
Force for Growth is about people, places, the planet and progress, things the utility’s employee volunteers are excited about. Last year alone, 3,500 DTE employees served 57,681 volunteer hours at more than 567 nonprofits.
“We have found when they are allowed to choose, they have come up with an incredible array of really impactful things,” Moody said. “They can earn dollars for their nonprofits that they support. And I think not just being able to give of their own time and energy but also seeing that financial gifts are granted to the nonprofits for the work that they do motivates them. So, we have about half the employees at DTE now engaged. That’s considered world-class volunteerism, so we’re very proud of it.”
Among the many projects was DTE’s work at the Randolph Career Technical Center school in Detroit, which seeks to provide high school students with the skills needed for the future.
“We rebuilt Randolph, raised the money, changed the curriculum, helped hire the teachers, recruited the students. That’s all skills-based volunteerism,” Moody said.
She said Randolph was a lesson for DTE in that is wasn’t just about employees giving time but about putting in time on things they are passionate about. “Our volunteers were engaged to the ‘Nth’ degree for this,” Moody said.
Adding to job prospects for those in need, DTE has also developed a program for returning citizens, those individuals recently released from prison.
Moody said Johns Hopkins in Maryland has had a similar program in place for more than two decades; statistically, its returning citizens are among its very best employees.
“They have employees now who have been with them for over 20 years. So, the statistics on that were really good,” explained Moody. “Then we just did a lot more benchmarking and we kept finding the same thing over and over again. So, we took it to the State of Michigan.”
The National Institute of Justice (NIJ) reports that between 60 percent and 75 percent of ex-offenders are unemployed and many face barriers to attaining licenses necessary for employment. The numbers are more astounding considering nearly one-third of Americans (between 70 million and 100 million) have a criminal record. NIJ studies report that returning citizens have a greater chance of being hired if they can interact with the hiring manager.
Rather than having hiring managers see the box that former offenders check on job applications confirming they have felony convictions, DTE launched a “Move the Box” program that doesn’t make that information available during initial applicant screenings. Because of the program, ex-offender job applicants have a greater chance of getting hired. The program allows them to be screened within DTE’s hiring system without the hiring manager knowing the person has a record.
Taking ESG to the streets
Frank Venegas Jr. started Ideal Group in 1979 from seed money he got from a car he won in a raffle and then sold shortly after. The company is a conglomeration of eight manufacturing companies.
Despite Venegas’ admission that he, like many people, wasn’t familiar with the term ESG, his vision is based on factors that make up ESG. Accordingly, he has created value not only for his family, the company and his staff of 500 but for the community as well.
“(ESG) is really how I grew my business,” said Venegas, the company’s Chairman and CEO.
When he moved his company to Southwest Detroit, there was 40 percent unemployment and tenable gang violence there. He said gang members from four different gangs went from shooting at each other one month to building things together after he met with them, discovered their needs and subsequently hired them. He also hires returning citizens.
“Our gangs were going crazy. It was really the Wild West,” Venegas said. “But if you really scrutinize the local news, you don’t hear about Southwest Detroit (negatively) anymore. And that’s why everybody’s moving to Mexicantown.”
Uniting community action with environmental impact, several years ago, Ideal Group partnered with customer General Motors to cultivate Cadillac Urban Gardens in a vacant lot. So far, 12,000 volunteer hours have gone into planting and caring for more than 2,500 plants there. And the community literally benefits from the fruits of the project.
“We started with one and now have 39 (replica gardens) in the community,” Venegas said. “The incredible thing is that these gardens were started by the people who work for me and not just people that were in top management.”
Reap bonuses, differentiate the brand with ESG
Grand Rapids-based Gordon Food Service knows doing the right thing doesn’t have to cost more.
Although fairly new to metro Detroiters, the family-owned-and-operated company has been headquartered in West Michigan for 120 years and has 175 grocery stores around the U.S. and Canada. The food service distribution company, which has nearly 20,000 employees, puts considerable effort into the social component of ESG by partnering with United Way, Habitat for Humanity and International Justice Mission among others; donating enough food in 2017 to feed 4.6 million people; and traveling to the African Bush region with bags of supplies for the people who live there.
Earlier this year, GFS opened a store on East Jefferson Avenue in Detroit where grocery options are few and food insecurity is high because the company focuses on bringing healthy, affordable local food to the communities it serves, said Alisha Cieslak, chief legal and risk officer at GFS.
“I was a student at Wayne State University Law School, and there was nothing for us. You’d go to Eastern Market or to a local grocer, but there would be a markup on that product. So, you’re paying $4 for an apple,” Cieslak said. “Here you don’t have that sort of price treatment. The Gordon family, generation after generation, believes it’s our job as stewards of the company and with the resources we have to leave the world a little bit better than when we entered into it. We believe very deeply it’s important to connect people with healthy and fresh food options, particularly in underserved, urban areas.”
Because their ideas are heard, Cieslak said GFS employees think about different ways to solve problems in the community with the company’s existing business resources and strategies.
One global problem she mentioned is human trafficking, otherwise known as modern-day slavery. The U.S. State Department estimates that worldwide there are tens of millions of human trafficking victims, comprised of U.S. citizens and immigrants, children and adults.
Aware of the epidemic and that every action counts, Gordon Food Service partnered with Englewood, Colo.-based Truckers Against Trafficking, a national nonprofit that taught GFS’s 3,300 truck drivers to recognize and report instances of human trafficking.
“All we did was play a 20-minute orientation video for our drivers and give them a 3×5 card to keep in the cabin of their trucks,” Cieslak said. “Effectively, the card tells them what number to call if they see something suspicious. We did get calls, but the impact that thousands of drivers on the road every day can make just by being a little bit more alert and aware can be pretty significant on a very important social issue.”
While she said ESG isn’t an edict from top leadership at GFS, she said employees have volunteered at more than 460 organizations, donated more than $703,000, prepared more than 124,000 meals and run, walked or swam more than 7,000 miles for causes they care about.
“What we realized was, if we create an environment where people can express themselves through service and what we call their heart to serve, they’re more engaged with the company and more engaged with each other,” Cieslak said. “I think that’s how you really create employee engagement in those communities and you create better customer experiences for our customers because employees are engaged. And then that’s when your brand starts to really resonate in some of those localized areas.”
This is about the long game, she maintained. Customers and employees will know whether or not the work a company is doing comes “from a good place,” Cieslak said. “If it does, it will pay dividends.”
Companies must benefit their shareholders, their employees, their customers and the communities in which they inhabit, VanderBrug agreed. “Your brand can be enhanced or destroyed from an ESG perspective. Companies that scored higher from an ESG perspective have been outperforming for the last decade.”
For more about how ESG factors can boost your business performance, visit bofaml.com/en-us/content/environmental-social-governance-ESG.html.