You may have been hearing the term ESG and wondered what it means. As a credit manager, you should be aware of how recent global and domestic legislative initiatives bring ESG into the forefront as compliance and social issue. Many in the workforce today want to work for a company that supports environmental concerns, and social diversity, and demands good governance. ESG is likely to affect how companies attract new employees and manage turnover.

ESG is supported by a growing number of legislative initiatives on a domestic and global scale. For example, the United States recently rejoined the Paris Agreement, an international treaty on climate change. European regulators are adopting more stringent environmental and social regulations. In the coming years, companies will be required to adopt internal processes to report ESG performance and compliance.

On the positive side, there are examples of concrete business benefits coming from a need for increased innovation, improved employee retention rates, reduced production costs, and helping companies with an increased resiliency during market downturns.

So, What is ESG? 

ESG relates to how companies are managing, measuring, and reporting in three broad areas: 

Environmental: This addresses an organization's commitment to modern environmental practices. Including such things as a company's carbon footprint, use of natural resources, how a company manages waste, and other climate change initiatives. A company's environmental commitment can be evaluated by looking at:

• Current environmental practices.
• How the company uses and helps conserve natural resources.
• The effect of company practices and supply chain sourcing has on the environment.

Social: This relates to a company's treatment of its employees, customers, and its supply chain providers. Specifically: 

• Active human rights initiatives, diversity, and inclusion, anti-harassment and discrimination, and fair labor standards. 
• Relationships to employees, communities, partners, and stakeholders. 
• Ensuring fair supply chain labor standards.
• Opportunities in finance and healthcare are offered to a company's employees.
• Demonstrating a meaningful social contribution to its surrounding community.

Governance: This covers the company's culture, behavior, and values including such things as: 

• A corporate structure conducive to equitability, diversity, and inclusion.
• Ethical business standards.
• Transparent tax and financial operations.

As a Credit Manager, What Can I do? 

Be proud and make sure your employees are aware of the good your company is doing in each of these areas. Encourage this message to come across as your company recruits new hires.

There are several things you can do to instill ESG values in your department. The following are intended as thought starters. Use your creativity and adapt to the unique culture of your department, company, and community.

• Demand ethical behavior and professional business practices. 
• Encourage age, race, and gender diversity among your staff members. The side benefit will be to bring in different points of view when addressing business issues. Age diversity may help bring new ideas and approaches.
• Set up team events to do something worthwhile for your community. Put on an event at a Senior community, sponsor a local little league team, take a Saturday to clean up a park, or a beach. There are so many ways to engage your staff. This can raise morale and build a team culture.

Conclusion:

ESG is here to stay. As a credit manager, you should have a basic understanding of how it relates to growing compliance issues and social trends that affect how your company is perceived by employees and new hires.

There is no way a comprehensive overview is possible in a short article such as this. Do your research on this topic. Use your creativity to bring ESG to life in your department and possibly your company as a whole.