Chemical Engineering January 2023 - 35

Feature Report
ESG Programs: Understanding
the Untapped Opportunities
While it may be easy to fixate on the costs and efforts associated with implementing
ESG programs, taking a closer look at ESG can reveal many untapped advantages
E
nvironmental, social and governance
(ESG) programs are intended
to encourage companies to act in a
responsible manner (Figure 1). With
the increasing importance among investors,
special interest groups and regulators, it is
vital to understand what ESG represents,
as well as related trends and how to use
it to gain a competitive edge. ESG investing
has been defined as, " a strategy you
can use to put your money to work with
companies that strive to make the world
a better place " [1]. Each company generates
and shares its own ESG report card,
which is typically verified by an independent
third party and addresses the three ESG
pillars accordingly.
Environmental. This describes how the
company is working to minimize the impacts
from its operations on the environment. This
is something that can go beyond direct operations
and often includes how vendors
and subcontractors are selected. In addition,
suppliers should be evaluated, since
this effort can not only identify potential environmental
concerns, but can also help an
organization protect its own interests relative
to raw-material quality and availability,
and can identify and reduce risk where organizations
rely on their supplier stock for
their own product development.
Social. ESG-driven companies are focused
on how they can use the influence of their
business and brand to change communities
for the better. This can include a wide
range of social issues, but should also be
something that has meaningful impact and
is supporting a cause much bigger than the
company. Companies that take the lead on
identifying their own social influences can
influence consumers looking for responsible
organizations to invest and buy from
as a means of exerting their buying powers.
In 2018, the Edelman Earned Brand Study
found that values-based communication
is as effective as product-based communication
in driving purchase intent, " and a
communication focused on a brand's stand
has an even greater effect on a consumer's
intent to advocate for the brand than one
focused on product features " [2].
Governance. This refers to how the company's
management is setting the example
for
positive change within the organization.
This can range from how executive
pay is managed to hiring diversity, equity
and more.
With a few exceptions, the regulatory
environment is moving toward full reporting
of ESG-related functions. This can be
felt in the U.S. with newly promulgated
regulations from a wide range of governing
bodies, such as local, state and federal
agencies like the Environmental Protection
Agency (EPA), the Occupational Safety and
Health Administration (OSHA) and the Securities
and Exchange Commission (SEC)
[3]. Some examples of how these regulations
are slowly changing over time can be
highlighted through recent proposed rule
changes by the SEC for publicly traded
companies. Until recently, publicly traded
companies were only required to report
ESG-related issues that were material to the
business. This reporting framework was in
place since 2010 and has undergone updates
since President Biden signed the Executive
Order on Climate-Related Financial
Risk in 2021. The SEC also proposed a rule
in May 2022 on climate-risk disclosures,
which require companies to report Scope
1 and 2 greenhouse gas (GHG) emissions
beginning in 2024. On a state level, California
has passed the Climate Corporate
Accountability Act, which requires approximately
5,200 public and private companies
to report GHG emissions.
Most professionals agree with the importance
of a well-run business that embraces
environmental stewardship, social responsibility
and good corporate governance. There
are, however, some who take exception to
this type of agenda being mandated as a
regulatory requirement, because the data
collection and reporting can be a costly expense.
It is important to realize that, if ESG
initiatives are fully embraced, a competitive
advantage will begin to emerge that will allow
companies to benefit from these perceived
regulatory burdens.
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35
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Chemical Engineering January 2023

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