ESG is mission-critical

The success of a company is measured by its strong financial results and operating performance – that’s table stakes. But increasingly, investors and other stakeholders are also judging companies by their commitment to the environment, their contributions to society and the strength of their governance.

This ESG-centered (environmental, social, and governance) investing approach has picked up momentum in recent years. A recent MSCI survey found asset owners across the globe planned to increase their ESG investments as a response to COVID-19. And in a PwC survey, about half of respondents said they would be willing to divest from companies that didn’t take sufficient action on ESG issues. This translates into significant economic impact: as our Chief Sustainability Officer Harold Jones noted recently, global sustainable fund assets hit an all-time high of $3.9 trillion in Q3 2021.

No longer just a buzzword, ESG has become the mainstream. Though my title may be Investor Relations, my mission goes beyond the investor community – I believe that an enterprise-wide approach to ESG is critical to addressing the needs of all our stakeholders.

At Eaton, we’ve been on a journey to focus on ESG as a critical part of our mission. We’ve found that prioritizing ESG requires a thoughtful strategy. First, determine your company’s unique vision for positive impact, then set clear goals and measure progress, and finally, report publicly and transparently the results of your efforts.

Building ESG into your company’s vision

For corporations, it’s not enough to simply react to stakeholders’ evolving priorities. To truly meet this moment, ESG considerations must be core to the organization’s mission – one that must center on making a positive impact. Only a truly values-based company will succeed, because they’re not just reacting to outside pressures or “checking the box” on ESG, but rather acting on their vision of improving the world in some unique way.

At Eaton, a focus on ESG powers our vision to improve the quality of life and the environment through the use of power management technologies and services. Our chairman and CEO Craig Arnold rallied our company around that mission years ago – and it’s backed by the work we do every day. Still, maintaining focus requires enterprise-wide effort and consistent action. Only by maintaining credibility and clear messaging over the long term will we prove our commitment to ESG.

Once a company determines how its vision drives ESG strategy, it’s also critical to get buy-in from executives and board members. ESG strategy is only as strong as the company leadership’s commitment to it. At Eaton, our Sustainability Executive Council, which includes several members of our senior leadership team, is responsible for the execution of our strategy.

This first step – of examining your vision and how ESG fits into it – sets an important foundation for building the rest of your approach to ESG.

Setting ESG goals and measuring your progress

The next step in enacting an ESG strategy is to listen to your stakeholders’ priorities. From speaking with investors, I know that they are interested in all aspects of ESG – they want to know we’re addressing the full picture. We talk to investors and analysts every day about product innovations, customer impact, our progress on emissions reduction, diversity metrics, our standards for suppliers and more. Your customers and communities may have specific priorities, too, such as equity and inclusion efforts and how your company gives back.

Next, choose specific, actionable goals that address every aspect of ESG that your stakeholders care about. You can’t just pick and choose – a stool with only two legs can’t stand. In the same way, you need all three “legs” of ESG for a solid foundation. Expert third-party sources can help determine an organization’s goals against each pillar of ESG. For example, the United Nations Sustainable Development Goals provide a framework for Eaton’s environmental targets.

Aspirational goals must be followed by a plan to make incremental progress toward them, because if you really mean it, then you have to measure it. An Accenture report raises a red flag: only 26% of companies have solid data to measure and monitor their sustainability goals. That’s why it was important for our 2030 sustainability goals to include clear metrics for success.

Also key is recognizing that ESG data is just as important as the financial metrics companies have historically prioritized. KPMG recommends that ESG should be woven into regular financial reporting because of finance’s experience with related metrics and insight into data throughout the organization. Prioritizing ESG data requires collective action throughout the enterprise.

Reporting ESG progress transparently

Once a company’s ESG-centered vision is in place, and clear goals are set, the next step is to report transparently the results of its efforts. Currently, there’s no unified global standard for ESG reporting, but rather many different ratings agencies and funds with varying standards and metrics. This poses a challenge for companies in reporting their ESG progress. (Though that could be changing, with the SEC recently proposing a requirement for public companies to disclose climate risk.)

It helps to look to the leaders, including ratings agencies like Sustainalytics, MSCI, ISS and CRP, who analyze publicly available ESG metrics and reports from organizations to determine scores. This system requires companies to be transparent and provide easy access to data and regular reporting using reputable and widely recognized industry standards.

At Eaton, one way we’ve shared progress against our 2030 sustainability goals is through our sustainability dashboard. Other examples of transparent reporting have included our standalone Task Force on Climate-related Financial Disclosures (TCFD) Report, which reports on climate-related financial risks, and our first Global Inclusion and Diversity Transparency Report, which tracks our progress on goals like increasing representation, employee engagement and community giving activities.

Ultimately, your company’s vision should guide your decisions. At Eaton, embedding ESG in our vision has helped us prioritize our commitments to reducing our environmental footprint, strengthening our workforce and communities, and doing business right. Discover more of our ESG story here.