Innotex Group 
Business sustainability in the form of ESG (Environmental, Social and Governance) is not easy to define. Maybe this helps.
Instead of thinking of ESG as a universal indicator of future performance, think of it as a specific set of criteria per organization that investors use to make decisions. By investor, avoid fixating strictly on investors of capital. Think about those people who invest in their careers by working for the company (employees), people who invest by buying products from the company (customers), people who invest their shared land and resources with the company (community) and people who invest in rules of compliance placed upon the company (regulation). Stakeholders are invested in the company.
One stakeholder’s ESG criteria might include very different topics than another’s. It is about how each stakeholder sees the information to make decisions as to how to invest their money and time.
A sports team comparison might help to better understand the idea of sustainability as a criterion. Three criteria are listed to evaluate two teams. The criteria are aimed to help which one an investor (bettor) would like to invest in (bet to win).
| TEAM A | TEAM B | |
| Score differential | +12 | +3 |
| Shots scored/shots taken % | 40% | 15% |
| Top players playing time | 75% | 40% |
This one seems easy. Team A would seem to attract the most investment. However, what if TEAM A was a basketball team and TEAM B was a hockey team? All three statistics for TEAM A by basketball league averages are lower than normal. All three statistics for TEAM B by hockey league averages are higher than normal. Knowing the sport is essential to interpret the data. Expanding this to a sport like golf, bowling or horse racing, the three criteria above take on little to no relevance. The sport not only dictates how to interpret the data for investment but also the criteria to utilize itself.
The same is true for ESG criteria. The criterion is specific to each industry (each sport). The investor sustainability criteria for each organization are highly dependent on the industry. Measuring external air pollution is a good criterion for a manufacturing facility but not highly relevant to a bank. Optimizing routes to reduce fuel use is a good criterion for a 3rd party logistics firm but plays less of a role as a sustainability factor for a healthcare facility. Finding innovative solutions to reduce plastic waste is a worthy criterion to evaluate a packaging company but not relevant for an insurance agency.
With a different set of criteria per industry, it becomes hard to standardize reporting. Without standardized reporting, it is hard to compare. When it is hard to compare, investment decisions based on ESG factors become muddled.
Where is all this going? Likely toward standard reporting for some overriding common criteria factors relevant for most organizations. Factors like greenhouse gas emissions (recent SEC Rule is the first attempt), employee health and wellbeing, safety, and data security.
Other criteria more specific to each organization and industry are likely left to voluntary disclosure. (at least for now)
Reporting and disclosures allow investors —- capital investors, employees, customers, communities, regulation — to better “price” the criteria into their investment decision. Organizations who score poorly on sustainability measures are adversely affected by investment from stakeholders. Those who score better, are likely rewarded with higher returns and valuations.
ESG as a straight-line universal indicator to future returns can be hard to follow. ESG as a specific criterion is not. A criterion applied to each industry, location and individual organization to allow all investors (stakeholders) to better allocate their investments (time, money, interests).
Determining the criterion for your industry and organization is the first step towards addressing any shortcomings. Authentic actions to address shortcomings becomes a strategy to drive both value and resilience — each keeps and attracts investors of all kinds.
