Stop Fighting ESG: Tips for becoming environmental, social & governance board leaders despite the lack of ESG clarity and standards.

• Author: Ogilvie, Marran
• Position: THE CHARACTER OF THE CORPORATION

Companies, and the boards that run them, are in an ESG quandary.

While funds and activists can set their social responsibility standards, the businesses they invest in are left to make sense of too-often vague or contradictory measures. Environmental, social and governance considerations, by their nature, are subjective. All major ESG standards--ISS, Glass-Lewis, Fidelity, BlackRock and so on --differ; sometimes in crucial ways. Most importantly, they often do not focus on issues that are material, or even applicable, to the companies they are grading.

Key questions loom.

How can you be good for the environment, your communities and your people when the standards are vague and shifting? How can you be sure your company will receive credit for its efforts from ratings agencies and investment funds? In the face of rising investor demand, how can you maintain access to capital when, due to the nature of your company, there may be no obvious ESG issues to work towards?

These need to be answered because the ESG drumbeat is only getting louder.

A new survey by Callen Investment Institute finds 43% of 89 U.S. institutional investors surveyed now integrate ESG factors into their investment decisions, which is almost double the percentage found in 2013. The biggest of mainstream funds, including BlackRock, State Street and Vanguard, have built ESG screens into their investing, launched targeted ESG funds, and actively lobby management teams on responsibility issues. As a result, sustainable, responsible and impact investing in the U.S. is rising sharply, hitting $8.72 trillion in 2016, a jump of 33% from 2014. The largest factor driving this increased demand, according to the survey, is client demand.

It's time to stop fighting the ESG wave. There are steps directors can take, beyond just focusing on the "E" for environment, which tends to get the most attention. ESG is not just about the planet. If a company doesn't have a large environmental footprint, directors and management should be able to determine an area within ESG that is important to the organization's business. A focus on "social," for example, is appropriate for companies where the employees are a very large resource.

Companies that focus on community and social issues create an environment where employees understand that the company culture cares about the community, and, as a result, cares about employees. By strengthening the company's commitment to its employees and encouraging...