Globalization, the process by which organizations operate internationally, has been a significant trend for the past few decades. While this trend has had plenty of benefits, it has also led to an increased demand for the accountability of major organizations. Key stakeholders want to see that such corporations are not only trying to improve their bottom line but also the world around them. This movement is known as environmental, social and governance (ESG). For upcoming business leaders, understanding this societal shift toward corporate responsibility will be crucial to your career success, mainly because while ESG may change over the next few decades, it’s unlikely to go away.
Whether you want to improve your current business practices or plan to enroll in an advanced business degree program, it is important to consider how ESG factors are shaping the future of business.
What Is ESG?
The Corporate Finance Institute (CFI) defines ESG as a framework that helps stakeholders of an organization understand how that organization manages risks and opportunities related to ESG criteria. Regarding ESG, “stakeholders” is an umbrella term that can include investors, employees, customers or suppliers. Each category in the framework refers to an area of effect or influence:
- Environmental: An organization’s environmental impact in areas like greenhouse emissions, natural resource use, recycling programs and more.
- Social: An organization’s relationship with its employees, customers and the communities in which it operates. Some examples of social impact are paying fair wages, having acceptable labor practices and giving back to the communities where it operates. It also includes not partnering with other organizations that might lack social responsibility.
- Governance: How an organization is led and managed, typically by ensuring the leadership team and stakeholders’ incentives align.
Using these three metrics, stakeholders want to see that a company is doing its best to positively impact the world around it, in addition to posting a profit.
Determining ESG Standards
The standards measuring companies vary based on factors like the size of the company, its industry and the countries in which it operates. Generally, the more influence a company has, the more it will be expected to adhere to ESG standards.
For example, stakeholders put a massive company like ExxonMobil under a microscope to ensure it does not decimate the world’s ecosystems in its quest to discover new oil fields. Similarly, people expect a highly influential company like Disney to showcase a wide range of diversity in its new movies to ensure all demographics feel included.
For most companies of this stature, ESG standards are now an expectation instead of an elective. In other words, major companies shouldn’t expect a pat on the back for reaching their ESG initiatives, just like they shouldn’t receive praise for achieving their profit projections. Instead, they should go above and beyond the call of duty.
Additionally, falling short of ESG standards will still be met with backlash. Failing to adhere to ESG standards can alienate stakeholders and cause them to ostracize the organization, leading to negative PR, fines and, in some cases, an overhaul of the management team.
When setting official guidelines and metrics, the World Economic Forum, led by a community of over 120 global CEOs, has created a four-pillar reporting system that prioritizes protecting principles of governance, the planet, people and prosperity.
These standards will likely remain in flux as new companies and technologies constantly emerge, another reason future business leaders should pursue an advanced degree before entering the corporate world.
Entering an ESG-centric World
As the world changes, so will the expectations for ESG. Business leaders entering the workforce will want to ensure that they are up to date on these standards and ready to accept a broad range of responsibilities encompassing everything from financial operations to corporate sustainability.
Excelling as a business leader in an ESG-centric world might sound daunting. However, obtaining an advanced degree, such as a Master of Business Administration (MBA), can make achieving success much more manageable. This is because these degrees help aspiring C-level executives successfully navigate the changing business landscape. Currently, that includes ESG.
For example, Southern Utah University’s online MBA – General Emphasis program offers specific courses to provide students with the leadership skills necessary to address topics in ESG management. Relevant courses include Managing People & Organizations and Authentic Leadership.
Students can complete the program in as few as 12 months, and graduates will enter the workforce ready to improve their corporation and the world around them.
Learn more about Southern Utah University’s online MBA – General program.