In recent years, ESG has become an important topic for investors, customers, and employees around the world. But what exactly is ESG? Why is it so important? And how does it relate to disability inclusion?
Read on to find out more.
What is ESG?
ESG (Environmental, Social and Governance) refers to the three key pillars used to measure the sustainability and ethical impact of a company:
• Environmental: The environmental criteria encompass a company’s impact on the conservation and protection of the natural world and the sustainability of business practices.
• Social: The social criteria refer to the company’s impact on employees and society, concerning issues regarding business ethics, how companies treat their labour force and their interactions with the local community.
• Governance: The corporate governance criteria evaluate the composition of the board, and the way management conduct themselves and navigate the business.
Why is ESG important to businesses?
Data shows that ESG compliance helps companies create value for investors, as well as attract and promote loyalty among customers and employees.
Investors
ESG is becoming a top priority for businesses, as more and more investors are incorporating the framework into their decision-making processes.
In 2021 the Porter Novelli Purpose Premium Index (PPI) found that 73% of investors feel organisations requiring their support must demonstrate how they impact the environment and communities.
And this is a growing trend. According to data from MIT Sloan Management, between 2018 to 2020, earnings call transcripts saw a 671% increase in references to ESG.
Profits and purpose are inextricably linked.
Data also shows that the social impact agenda is particularly important to younger people, with 84% of millennial investors stating that they are interested in investment projects founded on impact.
And businesses today must comply with ever more stringent ESG reporting requirements. On April 21, 2021, the European Commission adopted the sustainable finance package, including the Corporate Sustainability Reporting Directive (CSRD), which means that from 2024 almost 50,000 companies in the EU must report on ESG issues. In 2021, India also introduced new ESG reporting requirements for the top 1,000 listed companies in the country by market capitalisation.
Employees
Porter Novelli’s 2021 Business & Social Justice Study found that 58% of employees feel their employers should lead in initiating higher standards to address social justice issues, while 43% expressed dissatisfaction and unwillingness to continue working for their current employers because they ‘are not on the frontline to address social justice’.
The 2023 Net Positive Employee Barometer revealed that nearly half of employees say they would even consider resigning if a company’s values don’t align with their own, while a third say they have already resigned for this reason. This has led to a phenomenon known as ‘conscious quitting’.
Customers
A study by Unilever, which surveyed 20,000 adults from five countries, found that 33% of global consumers buy from brands doing social or environmental good. Similarly, 70% of respondents to the CONE Communications CSR Study believe businesses are responsible for improving issues relevant to the community.
And ESG is even more important to Gen Z, with a staggering 89% of consumers in this demographic expressing their commitment to purchasing from companies that support social and environmental impact.
How does disability inclusion relate to ESG?
Disability inclusion is a key factor within the ESG framework:
• Environmental: The requirement to ensure the sustainability of built environments and future-proof business practices means that companies must adhere to accessibility regulations and cater to ageing populations.
• Social: The criteria relating to how companies treat their labour forces and local communities extends to equal employment for people with disabilities, health and safety compliance, and the provision of products and services to the disabled community.
• Governance: The evaluation of board composition and management practices necessitates representation of disabled people at leadership level, as well as corporate strategies for disability inclusion.
From an investor perspective, it has been shown that disability-inclusive businesses actually perform better than their peers. In fact, Accenture found that companies that embraced best practices for employing and supporting people with disabilities achieved 28% higher revenues, double the net income and 30% higher economic profit margins over a four-year period.
Effective disability inclusion strategies can further help companies win the war on talent. The disability employment gap means that people with disabilities represent a huge, untapped pool of talent globally. The employment rate of people with disabilities in OECD countries is just 44%, vs. 70% for people without a disability. And in developing countries, an estimated 80% – 90% of people with disabilities of working age are currently unemployed.
Legislation, such as the Americans with Disabilities Act (ADA) and the Disability Discrimination Act (DDA), also requires the equal inclusion of disabled people in the labour market. Failure to comply with this kind of legislation can expose companies to significant financial and reputational risk.
Where are we now?
Although there is a strong business case for including disability inclusion within the ESG framework, this is not currently the case. Disability is absent from standardised key performance indicators, metrics and targets. Companies do not currently collect or report data which would enable stakeholders to monitor progress in this area, nor are they required to. In order for disability inclusion to become a key decision-making factor within ESG, the first step is for companies to routinely report on disability data.
The Tortoise Responsbility100 Index found that just 19 of FTSE 100 companies report the number of employees with disabilities in their workforce and only three (BT, Centrica and Landsec) reported any disability representation in senior management.
In 2022, the Valuable 500 undertook an analysis of FY 2020 — 2021 annual reports produced by companies within the Collective. This analysis showed that 22% of Valuable 500 companies publicly disclosed workforce representation percentages, suggesting that while disability reporting is improving, there is a long way to go before this data is capable of being included meaningfully within the ESG framework.
Investors are now beginning to apply pressure on companies to improve their reporting standards. For example, in 2021 investors asked Nasdaq to include people with disabilities in a new boardroom diversity rule for most of its US listed companies.
What does the future hold?
A recent survey from EY exposes a gap between expectations of business leaders and investors when it comes to ESG. While 78% of investors want companies to focus on environmental, social, and governance activity, even if it hits short-term profits, only 55% of businesses are willing to do so.
This expectation gap is likely to widen given the current global economic downturn. Companies that made promises to hire more people from underrepresented groups, such as people with disabilities, are now disbanding entire departments meant to achieve those goals, as evidenced by the huge layoffs in the tech sector in Q4 of 2022 and Q1 of 2023.
It is likely that job cuts and loss of profits may slow or even prevent further development concerning DEI and accessibility initiatives across many sectors over the course of 2023.
But with the appetite for ESG reporting and compliance still growing, businesses must seek to balance financially material issues with social impact, including disability inclusion.
Given the role that disability inclusion plays across all three of the ESG pillars, it’s important that companies start to routinely report disability data. In the future, this data could then be included within standardised reporting frameworks, enabling investors, consumers and employees to meaningfully assess companies’ impact in this area.
If you want to find out more about this topic, download The Valuable 500 Global Trends Report – Issue 10.
Sources: Porter Novelli PPI, MIT Sloan Management, Entrepreneur.com, Carbon Trust, India Briefing, Porter Novelli Business & Social Justice Study 2021, Cone Communications Millennial Employee Engagement Study 2021, 2023 Net Positive Employee Barometer, CONE Communications CSR study, Unilever, Accenture, OECD, United Nations, Tortoise Responsibility100, ESG and Disability Data, Fortune, EY.
