Corporations are not merely economic entities; they are intricately woven into the fabric of society. They hold substantial influence, molding our surroundings, livelihoods, and well-being, especially as the world grapples with escalating environmental and social issues. It is increasingly clear that progress hinges on a fundamental shift in our interactions with these entities.
This year, the global communications firm Edelman discovered that public trust in businesses remains relatively high. Two-thirds of respondents perceive businesses as responsible and ethical, surpassing the half that view governments in a similar light. However, this trust comes with increased expectations. By a six-to-one margin, respondents expressed a desire for businesses to take a more active role in addressing issues such as climate change, economic inequality, and workforce reskilling.
Enhancing social responsibility requires a commitment to greater transparency. From the Deepwater Horizon oil spill in 2010 to Purdue Pharma’s role in the U.S. opioid epidemic, ample evidence demonstrates that corporate opacity contributes to many social and environmental challenges. For this reason, Environmental, Social, and Governance (ESG) analytics, which encompass reporting mechanisms and standards to assess a company’s behavior, represent a way forward. ESG, a term that is often misconstrued, simply enables investors to screen potential investments and measure how companies handle risks.
Transparency, a cornerstone of ESG, provides investors with deeper insights into a company’s behavior, policies, and performance. This allows investors to measure how companies align with their marketing messages and commitments and gives companies an added incentive to do so. ESG analytics, coupled with grantmaking research, can also drive social change strategies by offering crucial information on a company’s impact on social and environmental issues.
A significant obstacle to addressing global challenges like climate change and income inequality has been the lack of transparency in corporate behavior. Corporations often operate in secrecy, shielding their activities and making it challenging for the public and investors to evaluate the true consequences of their actions. This opacity has enabled irresponsible practices, from environmental degradation to worker exploitation, to persist unchecked. ESG analytics dispel this opacity, empowering stakeholders to make informed decisions.
When companies recognize that their actions undergo scrutiny, they are incentivized to adopt responsible business practices. This fosters a culture of accountability, prompting businesses to embrace ethical behaviors and sustainable strategies, resulting in a win-win scenario benefiting both corporations and society.
Strong ESG practices not only enhance public perception and long-term stability for corporations but also contribute to a cleaner environment and fairer practices for society. Moreover, embracing ESG is synonymous with better business practices, fostering a more resilient national economy that benefits more Americans.
Part of this is because ESG investing compels companies to address risks and opportunities beyond traditional financial models. Research consistently shows that companies prioritizing environmental, social, and governance considerations perform better. Beyond financial gains, adopting ESG practices fosters a sense of belonging among employees and enhances corporate reputation.
Amid the critical challenges of our time, particularly in this “decisive decade,” demanding transparency from corporations through ESG analytics is imperative. It is time to embrace transparency as a fundamental driver of social progress, guiding us toward a brighter and more sustainable future.
Dana Lanza is the co-founder and CEO of Confluence Philanthropy, a non-profit organization that supports and catalyzes a membership network of over 250 private, public, and community foundations, family offices, individual donors, and their values-aligned investment advisors. Its mission is to transform the practice of investing by aligning capital with its community’s values of sustainability, equity, and justice. Together, its members represent more than $75 billion in philanthropic assets under management and over $3.5 trillion in combined managed capital.