Governance in the Digital Age

CHAPTER 5 From Corporate Citizenship to ESG

Shareholders use many acronyms to gauge a corporation’s value: earnings per share (EPS), return on equity (ROE), and LTV/CAC (lifetime value/customer acquisition cost), to name a few. A new one is rising in priority: ESG (environment, sustainability, and governance). And the days of ESG as “nice to have” activities to generate goodwill and feel-good PR are moving behind us. Given its power to minimize risk and maximize shareholder value, attention to ESG has become a business imperative.

“It’s in the storming, forming, and norming stage right now,” according to corporate director Nora Denzel. “Boards are sitting down and creating sets of criteria around diversity, carbon footprints, worker safety, and so on. Which aspects of the environment, sustainability, and governance are most relevant to their business?”¹

Often, this relevance, and the ascendance of ESG priorities, is due to outside forces: When Arjuna Capital and As You Sow filed a resolution asking Exxon Mobil to report on how the company plans to reduce dependence on fossil fuels, they highlighted climate change as a business risk that demanded corporate attention and more transparency between the board and shareholders.² In March 2018, institutional investors representing $100 million of Rio Tinto’s shares filed a motion to the mining giant’s Australian arm to review its association memberships.³ The charge: These groups’ lobbying activities were hindering sensible climate ...