Thompson Hine's "Smaller Public Companies and ESG" explains why small companies may wish to consider ESG issues notwithstanding limited resources and the relative dearth of shareholder proposals and investor pressures to do so compared to larger companies. Upsides may include potential synergies between ESG issues and the company's strategic and operational goals, enhanced corporate reputation, employee/customer/other stakeholder goodwill, and attainment of a competitive advantage.
Companies seeking to explore ESG are advised to identify opportunities and risks that are likely to have the greatest long-term financial impact on the company.
Consider, for example:
- Are customers concerned about any particular ESG issues, and would addressing them provide the company with any advantage over its competitors?
- Are customers looking for environmentally friendly products or services provided in a sustainable manner?
- Could some human capital-driven initiatives assist with hiring and talent retention, reducing turnover rates and related expenses?
- Would proactivity on E&S issues reduce costs for compliance with future regulations?
The firm also suggests companies review their investor profile including its alignment with the company's strategy and investors' views on ESG issues. Investor-related questions that may help the company's assessment include:
- Has the company engaged with its investors on ESG issues and, if so, what feedback has it received?
- What are the profiles of the company’s peers and their stance towards ESG issues?
- How would an activist look at the company and its ESG profile?
More generally, the post encourages companies to consider the potential benefits that may be achieved in the shorter and longer term by acting proactively on ESG in lieu of deferring consideration either reactively or until certain upsides (e.g., competitive advantage) may no longer be attainable.
See also these recent reports:"ESG: New Framework for Established Practices" and "ESG Disclosure: Engagement Framework," and additional information & resources on our Sustainability/ESG page. This post first appeared in the weekly Society Alert!