Setting the Scene
Over the past several years, faced with mounting pressure from regulators, investors, customers, and employees, companies have increased ESG efforts to create and sustain value.
These efforts have aimed to improve corporate performance, enhance perception, and mitigate short- and long-term risk. Many companies have adopted “ESG” as an umbrella term encompassing corporate sustainability, philanthropy, and social impact programs, reflecting a framework for measuring, and assessing the sustainability of an organization. ESG has also served as a tool to identify non financial risks and opportunities with the intention to enhance long-term, risk-adjusted returns.
As ESG grows in both prominence and relevance, it is increasingly important to clarify its value in reducing risk and improving environmental and social performance.
As ESG has gained traction, an increasing number of organizations are being accused of using it to provide an illusion of sustainable operations while making a negligible impact on the issues they set to address. For example, “greenwashing” has become a term used to describe the practice of marketing efforts around environmental progress despite an absence of real action. Some have questioned whether ESG is simply a risk analysis tool for investors or a framework for driving progress. The skepticism has led to a heightened spotlight around ESG claims and raised the importance of ensuring that companies have clear, consistent, and meaningful metrics for reporting progress.
Historically, environmental metrics have allowed for better quantitative assessment, and companies have enjoyed the clarity of accounting protocols, the availability of disclosure frameworks, and a robust body of research related to environmental and climate-related risks. Similarly, governance metrics have been widely accepted to measure a company’s commitment to basic practices, standards, and ethical norms.
In comparison, the social pillar of ESG lacks the same level of rigor, resources, and standardization that leaves many companies and nongovernmental organizations (NGOs) defining, measuring, and reporting social impact differently. Investors are offered lean or inconsistent data that cannot support financial risk analysis and can lead to incomplete assessments of corporate performance on social issues. Existing metrics, such as the United Nations Sustainable Development Goals (UN SDGs) have attempted to solve this, but the UN SDGs have limitations, as they are primarily designed to track national, population-level statistics.
At first, the underdevelopment of standardization and robust social metrics may appear as a challenge for the ESG movement. But it presents an opportunity to harness the well-developed field of education and human development as a central foundation for a robust ESG social pillar.
Education, human development, and training — which encompass policies, programs, and activities ranging from early childhood development and literacy to formal education for marginalized groups and skills for the workforce — present tangible corporate actions and well-researched, quantifiable impact metrics for evaluating performance. This allows for purposeful corporate action with measurable impact across all three pillars of ESG.
In rich and poor countries alike, education is under-resourced and underperforming, posing risks to not only the business community, but the global economy and society at large. At present, more than 1 out of every 2 young people are not on track to have the most basic skills for employment by 2030. Worldwide, 260 million children are currently out of school, and the pandemic has resulted in 7 out of 10 children in lower-income countries unable to read basic text at age 10.
As companies struggle to recruit and retain talent, build diverse workforces, identify new markets for expansion, and ensure the sustainability of supply chains, the current trends in education, if left unaddressed, will intensify the pressures and risks companies face. Given the strong, positive correlations between quality education and economic growth, health outcomes, inequality, stability, and climate action, education is the key to unlocking nonfinancial factors that hinder business sustainability.
In the current corporate landscape, companies traditionally committing to education as a social impact priority are finding it difficult to justify and integrate these efforts under new ESG frameworks linked to risk mitigation and sustainability. Similarly, ESG professionals do not, at first glance, view acting on education as a leverage point to advance their environmental or governance objectives. While current disclosure metrics provide some structure for reporting, they do not deliver the means to contextualize how corporate efforts are connecting to fundamental social progress. This has created an environment where companies tend to focus on diversity, equity, and inclusion (DEI) and human capital management (HCM) disclosure metrics without taking account of tangible education, development, and training actions that drive the metrics and greater long-term change.
The ESG report provides a blueprint to address corporate sustainability and risk mitigation goals while driving real societal change by positioning education at the core of ESG strategies. The blueprint puts forward a process to do the following:
- Identify material issues for a company.
- Develop simple, evidence-based actions and policies rooted in education and training.
- Monitor impact through clearly defined and robust metrics.
- Articulate measurable impact across ESG priorities contributing to real social change.
Positioning the “S” in ESG as a function of diverse education and training policies and investments addresses the global education crisis while reducing risks that can threaten corporate financial and non financial success.