2020 was undoubtedly a landmark year for the S in ESG (Environmental, Social, and Governance) considerations. Investors are continuing to seek out transparency and solutions, now with more insistence and organization. This push comes in wake of the biggest civil rights protests in decades and as qualified minorities have often lost out on career opportunities and promotions to White men. The global pandemic has added to the inequities with women and people of color experiencing the worst job losses since March 2020.
During a recent Bloomberg-sponsored conversation, titled “Quantifying the S in ESG,” Regina Curry, Chief Diversity Officer at Franklin Templeton, and Germaine Hunter, Vice President for Global Inclusion & Diversity at the Clorox Company, discussed this rise in demand for social data, what that means for corporations, and the overall business case for equality, moderated by Sabina Mehmood, Product Manager of the Bloomberg Gender-Equality Index (GEI).
Investment interest
In an initial commentary on the increased appetite for data and transparency, Eric Kane, ESG Senior Analyst for Bloomberg Intelligence, summarized what he sees as the current trends linking ESG performance, and the S specifically, to future value.
As with overall investment interest, disclosure of social data is on the rise. “Companies are increasing their transparency, with respect to key social metrics,” Kane said. “As transparency is increasing, we’re also seeing an increase in ESG-themed ETFs, specifically the development of social-specific ETFs.” These include gender- and diversity and inclusion-related data. The amount of interest and investment in these vehicles, according to Bloomberg data, has been consistently increasing over the past five years.
It’s important to note how corporate performance on S factors is measured. At Bloomberg, this is evaluated in many ways, one important one being ESG scores. “These scores, and the data used to calculate them, are fully transparent, as is the methodology we apply,” Kane said. “The scores are also quantitatively driven, which speaks to the need for transparency. These scores are based solely on the information that the companies themselves are disclosing, and are industry-specific. We identify the issues we feel to be most material for a given industry, on both the environmental and social fronts, and score companies accordingly.”
How transparency drives accountability
In 2021, more investors are pressuring the corporate world on D&I, pushing to ensure their workforces — particularly in senior management — reflect the overall diversity of the U.S. population. Social issues generally, which include topics such as pharmaceutical prices, worker pay and scrutiny of supply chains, have garnered a total of 92 resolutions for this year’s proxy-voting season, according to the Bloomberg Intelligence. When considering other ESG factors, that compares with 43 for governance proposals and 30 for the environment as of April 15.
This demand has real implications for the D&I policies and processes being developed across the corporate world, as well as companies’ individual cultures and ability to attract and retain talent. At many firms, the value of D&I initiatives and creating diverse and equitable workplaces is understood – but how do they use data to drive necessary changes?
“For us at Clorox, there’s a large effort around transparency,” said Hunter. “We have a set of ESG disclosure principles that we’re trying to use to ensure that we have a good balance that’s focused on strategy while delivering against the interest of all of our stakeholders, internal and external. We’re continuing to do significant work on our approach to human capital disclosures, all within the idea that transparency brings growth and improvement.” These goals also extend past current disclosures and frameworks, as companies look to the future and question how they can expand their reach. “We’re committed to expanding disclosures,” Hunter explained, “and we know that quality data helps all of our stakeholders make better decisions. These processes will serve us well now, and hopefully into the future.”
Identifying gaps
Since it’s impossible for companies and senior leaders to manage what’s not being measured, identifying gaps and problem areas is key, and can offer an opportunity to evolve and build internal support.
“Using data takes the emotion out of these conversations,” said Curry. “When you know the numbers aren’t great, utilizing multiple data points, whether it’s workforce data, representation data, or engagement – when you’re looking at that information, I like to remind the leaders I work with that it took multiple years to get here and it is our responsibility and accountability to make changes. That means taking a hard look at where we are, putting targets and measures in place the way we would with any other business goal, and getting serious about the changes we can make – immediately and in the long term.”
Targets and data transparency start with understanding what to quantify in the first place. The Bloomberg Gender-Equality Index Reporting Framework, for example, aims to arm companies with a blueprint for understanding what they can be measuring in order to manage effective change. As just one of many tools Bloomberg offers to help corporations hold themselves accountable for progress, the comprehensive scoring process of the GEI takes it one step further, allowing companies to benchmark against their peers, truly understand where there are opportunities to do better, and perhaps even pinpoint where they can benefit from data targets over time.
By taking an honest look at their social data, companies can focus on building the business case for equality, while ensuring their cultures reflect the larger, changing world.