Elevating Racial Equality Requires a Holistic ESG Approach

This article on what companies can do to improve on their racial equality performance was written with Jane P. Madden, Managing Partner, Global Sustainability & Social Impact Practice Leader, Finn Partners.

In response to the murder of George Floyd by police in late May, America has brought BIPOC (Black, Indigenous and people of color) issues front and center, with corporations speaking out in support of racial equality like never before. In addition, racial equality and economic disparity has become an increasingly important part of the COVID-19 discussion. As we head into August, companies must go beyond standalone Black Lives Matter statements and social media blackouts. To do this, they must begin implementing authentic and sustainable changes into their business strategy. 

As the anti-racist movement, a global pandemic and ongoing environmental crises converge, it has become increasingly clear that environmental and governance issues are also social issues. As governments, NGOs and activists navigate solutions, it is also critical that businesses reassess how to create financial value while also utilizing their business to generate social value.

Racial equality is a vital part of ESG

ESG (environmental, social, governance) performance is the core of responsible business. It is also a powerful business driver that builds resiliency. In fact, research from BlackRock suggests a majority of ESG-focused investment portfolios have outperformed non-sustainable counterparts during this year’s coronavirus-driven downturn – and the investment giant is even going so far to vote against management in companies in which it has invested.

My colleague, Jane Madden (Managing Partner, Global Sustainability & Social Impact Practice Leader at Finn Partners), shares it has always been a best practice that ESG be approached in an interdisciplinary manner and reflect the mission and core values of the company. But as we see the silos of ESG break down even further, companies need to look at ESG through an integrated and holistic lens.

For example, recent anti-racism protests have put environmental justice in the spotlight, as activists reconnect the social justice movement with the disproportionate number of people of color and the poor who live and work in places with degraded environmental quality (both an “E” and an “S” issue). “The lack of corporate board diversity and management (generally a “G” issue) limits benefits realized from diverse points of view, but it has also played a large role in socio-economic disparities across the country,” Jane says. “Furthermore, sustainability leaders need to own past discrimination and integrate anti-racism into the discipline. They can no longer look at the E, S or G as stand-alone issues.”

Public health, systemic racism and fostering more diverse and inclusive workplaces are very complicated. These challenges and their solutions must not be over simplified. There are several principle-based actions companies can take to ensure better incorporation of ESG to create a more equitable, resilient, and social-positive business.

Five actions businesses can take to secure racial equality

Go Beyond the Pledge. Commitments to racial equality need to be supported by measurable actions. Companies who have made statements of solidarity with Black Lives Matter and other organizations, but who do not have diverse hiring or labor practices, have been rightly criticized. Companies that strive to improve performance need to own past behavior and be open about their challenges. Most importantly, they need to take thoughtful actions that will have lasting impact by creating a more diverse, inclusive and equitable workplace. 

Be transparent. The foundation to any ESG strategy is transparency. As the world and the markets rapidly shift, companies need to be transparent in their commitments and honest and modest about their actions and achievements, particularly when it comes to BIPOC employees and communities, to earn trust.

Activate diversity competency. According to Black Enterprise, 187 S&P 500 companies (37 percent) did not have a single black board member in 2019. Critical diversity and inclusion initiatives should expand to include DE&I competency, especially at the board and management level. Just as climate leaders called for “climate competency” on corporate boards several years ago, we need to build “diversity competency” on corporate boards. Implementing new policies and actions, including: the hiring and wage equity practices; ensuring that the talent pipeline includes historically black colleges and universities (HBCUs), black and minority student groups and alumni associations; and linking management performance to diversity, equity and inclusion outcomes, will strengthen the business. They will also add long-term value from new talent and a more inclusive corporate culture. More diverse and culturally inclusive workplaces can also help systematically address the wealth gap for BICOP employees.

Think and act local. Engaging with local community groups is a critical piece of developing and implementing any business strategy. While national or multinational organizations provide expertise and scale for certain issues, going local should, at the very least, be carefully considered as part of any strategic engagement. This may mean partnering with local organizations to advise on hiring practices or identifying business partners who can help achieve business and communication goals through a thoughtful social impact lens.

Donations are necessary but not sufficient. There will always be a critical role for corporate donations, but it does not replace rethinking and changing your business model from hiring to marketing to products and services. One-time donations, while welcome, may not always make the intended impact. Reactionary contributions made in the name of racial equality can come off as disingenuous, especially if the cause does not align with the company’s core values or is contrary to its actions. Utilizing the company’s core business competencies, employee skills and resources, and implementing long-term impact investments, can create more equitable and resilient economies and communities, and better meet employees’ values and their own growth objectives. These same actions strengthen trust and loyalty and can develop talent and customer pipelines. Use the power of your corporate purse in another way – support and integrate black-owned businesses into your supply chain.

Corporate sustainability is not a zero-sum game. The rise of social issues, including racial equality, does not diminish the importance of environmental issues. All must be addressed. To be effective and meet ESG performance goals, environment, social and governance issues must be considered holistically and be integrated into business strategy.

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