Doing Well Requires Doing Good
Leaders who care about their organization’s reputation and success—not to mention their own—need to understand the following family of acronyms: CSR, ESG, SDG, TSI. The topics they cover are serious and important. Many executives will be judged by how well they respond to the issues the acronyms represent.
But responding properly requires clarity. So I wouldn’t use the acronyms very often, because most people won’t know what you’re talking about.
Acronyms are meant for experts, people already in the know. If you’re having a conversation with anyone else—investors, employees, your spouse—spell it out for them. As Ricky Ricardo (Desi Arnaz) might have said on the old “I Love Lucy” television show: “Splain it.” It’s what an acronym stands for that’s important.
So let me ‘splain’ CSR, ESG, SDG and TSI—and why you should care.
CSR is short for Corporate Social Responsibility, a topic that has engaged academics, activists, executives, economists, investors, policy makers and social scientists for many years. It is especially important these days, surveys show, to younger millennials.
The Association of Corporate Citizenship Professionals —yes, they even have their own association—credits a 1953 book by Grinnell College President Howard R. Bowen, “Social Responsibilities of the Businessman,” for introducing the concept of corporate social responsibility into the public consciousness.
For many years, businesses attempted to meet these responsibilities primarily through charitable activities and contributions. More recently, however, companies have moved beyond that narrow perspective, understanding the need to incorporate socially responsible practices into their core operations. This is where ESG and TSI come in.
ESG, the second acronym I listed, refers specifically to a company’s commitment to Environmental, Social and Governance concerns (thus, ESG).
This has become a matter of significant interest to increasing numbers of investors in recent years. Like millennial employees, many investors want the companies with which they’re affiliated to be more than just profit machines.
Oxford University Visiting Professor Robert Eccles explained in a recent Harvard Business Review IdeaCast interview that as people began to realize that corporate environmental, social and governance practices “mattered to financial performance,” doing right in these areas became much more of a priority. “When the CEO and the CFO are hearing about sustainability themes from the people who buy and sell their stock,” Eccles told HBR Senior Editor Alison Beard, “that makes it become very real.”
And very real it is. For years, researchers have been tracking the correlation between companies’ performance on various ESG metrics and their economic performance. A 2017 BCG study, for example—looking at 300 companies across five industries—found that companies that outperform their peers in “industry-relevant” environmental, social and governance areas “boast higher valuation multiples and margins, all other factors being equal, than those with weaker performance in those [ESG] areas.” In other words, you can have your cake and eat it too; helping others helps the bottom line.
SDG, the third acronym I listed, is shorthand for the United Nations’ 17 sustainable development goals, which include such worthy objectives as “ending poverty and other deprivations,” improving health and education, reducing inequality, and spurring economic growth—“all while tackling climate change and working to preserve our oceans and forests.” All this, and more, by the year 2030.
Business and industry are expected to play significant roles in this UN-led effort. In fact, I’m told there’s little chance that the goals can be met without business driving the progress.
And finally, TSI, which stands for a company’s “total societal impact.”
The BCG study I linked to earlier describes TSI as “the total benefit to society from a company’s products, services, strategy, operations, core capabilities and activities.” In other words, how it impacts the world, how it delivers progress on the sustainable development goals, and how it incorporates ESG factors into its strategy and operations to enhance its financial performance.
The bottom line in all this is simple: It’s not enough anymore for corporate leaders to deliver strong financial results.
Employees, investors, regulators and board members are demanding that companies do more—much more: that they conserve resources, eliminate carbon dioxide emissions, source responsibly, build resilient supply chains, provide safe and welcoming workplaces, and ensure access to their products and inclusion of those still on the outside looking in.
As my colleagues Dave Young, Wendy Woods and Martin Reeves wrote recently, “Companies will face escalating social activism by investors, stakeholders, social mission organizations, and policymakers on issues of climate risk, economic inequality, and societal well-being. Governments and local communities will set a higher bar for a company’s right to operate, and … a company’s local performance will quickly affect its global reputation and trigger social and regulatory consequences.
“Stakeholders will expect radical transparency on ESG performance,” shifting investors’ perceptions of a company’s risk and opportunity, “skewing capital toward those that deliver both financial returns and positive societal impact.”
This is the challenge senior leaders face. They need to walk the walk, and not just talk the talk.
CSR, ESG, SDG and TSI are acronyms; but they may be the keys to your company’s future.
