ESG. Three simple letters with complicated connotations. What is it and who is driving it?
Environmental, Social, and Governance (ESG) initiatives have gained prominence as some say, they aim to create sustained outcomes that drive value and fuel growth, all while strengthening our environment and societies.
In Augusta, we witness ESG in action when influential organizations such as Augusta National Golf Club invests in the Harrisburg neighborhood and supports the Girls and Boys Club, or when WJBF-TV and Murphy Auto Group team up to donate to the school system to help scholar-athletes and teachers.
Whether the initiative is utilized by business or nonprofit fundraising, it’s being driven in large part by the combined 161 million Millennials and the Gen Z generation. According to a Pew Research Center survey, more than 75% of these groups will change their buying and philanthropy decisions based on ESG, combined that amounts to 165 billion dollars.
Augusta University Business professor and ABD Contributor, Dr. Simon Medcalfe oversaw a study into ESG practices in the fashion industry.
Dr. Medcalfe’s research, conducted in collaboration with Augusta University undergraduate student Eva Miralles Miro, focuses on sustainable practices.
“The fashion industry is notorious for its environmental impact, with a single cotton T-shirt requiring a staggering 2,700 liters of water to produce,” Medcalfe said. “As the second-largest polluter globally, the industry necessitates a shift towards more sustainable practices. Moreover, the extensive supply chains of fashion firms, often spanning developing countries in Asia, raise concerns regarding labor and environmental standards.”
The study examined various sustainable practices adopted by fashion firms, including transparency, supplier relations, worker empowerment, and environmental management.
Firms were evaluated on a 12-point scale, with grades ranging from A+ to F.
Return on equity (ROE) served as the measure of financial performance. The findings revealed that a one-point increase in a firm’s sustainability grade translated to a 3-4 percentage point increase in ROE.
Dr. Medcalfe emphasizes the positive correlation between ESG practices and financial performance, citing scholarly research that supports this claim.
“Companies that invest in ESG may face higher costs initially, but the benefits ultimately outweigh these expenses,” he explains. “A better-educated population will enhance your workforce. Scholarly research has found a positive impact on financial performance. Investing in ESG may be more costly to a company, so the extra benefits have to exceed the extra costs.”
Still, others say requiring companies to subscribe to this framework is costly and fraught with unfair burdens. That’s where Augusta engineer, Dan Rickabaugh says ESG has gone astray.
He works for the engineering firm, Century 3, which has a large footprint in the area. After attending a local meeting about ESG, Rickabaugh said he had concerns.
According to an article by the Alliance Defending Freedom: “Business leaders are told they must integrate ESG strategies into their workplaces with an all-or-nothing mindset. Companies will not get the return on investments unless full integration has succeeded,” the article claims. “Top management needs to fully go for it 100 percent or else it will fail.”
Rickabaugh argues it’s a slippery slope for companies that do fully subscribe to ESG.
“If a company wants to boost its environmental score, it needs to go green. Facing pressure from investors, banks, and shareholders, companies are rushing to appear as if they’re doing their part to save the planet,” he suggests. “Second, to appear more socially conscious—the “S” in ESG—companies are coerced into educating their employees critical race theory, supporting radical gender ideology, and adopting pro-abortion policies. The damaging effects of ESG policies are numerous, affecting every American.”
