November 19, 2020
November 19, 2020
A company’s success relies on its people. To recruit and retain top talent, companies should have a vested interest in highlighting their socially conscious programs and offerings to demonstrate alignment with what’s most important to new generations entering the workforce. Furthermore, the investor community is increasingly incorporating a company’s environmental, social, and governance (ESG) standing into its decision-making process. Though it is hard to quantify how ESG ratings may impact a stock, a strong ESG position with robust disclosures and metrics can only help.
CACI has seen a focus on ESG from major passive investors like BlackRock and State Street Global Advisors—and these firms command a considerable amount of investable dollars. In addition, the active investor community is now paying attention to ESG for two reasons: First, there is client demand for ESG-focused investment vehicles. Second, the buy-side is using ESG metrics as a measure of corporate risk.
As the investor and workforce focus on ESG continues to rise, do not simply check the box for rating agencies, but consider real business risks, challenges, and opportunities, and provide disclosures that address aspects of ESG that are material to your business.
CACI International, for example, has a robust set of “S”-related disclosures that we communicate externally on our corporate website via our “Corporate Social Responsibility” page. For CACI, this content communicates all that CACI was already doing as a company on this front. I expect other companies will be in a similar position while some have not yet begun to measure what matters. No matter where you are on your ESG journey, being able to give concrete evidence of the company’s social impact is key—and boards play a role in helping a company maximize its ESG standing in the eyes of all stakeholders.
Every board will choose to approach ESG differently. CACI’s board, for instance, has two distinct committees to continually address ESG concerns. The investor relations committee and culture committee ensure that CACI remains focused on ESG and upholds the company’s established culture and commitment to ethics and integrity. These committees are unusual in that most companies delegate ESG oversight to the existing, standard three board committees. A standalone committee, however, can be but one means of demonstrating the board’s focus on and commitment to all stakeholders, including investors, employees, communities, and customers.
Even so, one size does not fit all when it comes to a company’s governance, culture, and mission. The real key for boards and their management teams is to address ESG in the context of what’s material to their businesses. Work with what you have in place; directors may be surprised to find that much of what their companies are already doing addresses ESG. Have a company’s investor relations function give regular updates to the board and committees, informing directors of growing trends across the investor community as they pertain to ESG-focused funds, ESG and buy-side investment decisions, and what the buy-side clients are asking about. Then, expand on this, while staying true to the company’s values and culture.
Leadership cannot turn a blind eye to ESG, especially the “S” piece which this year has come to the fore. It is gaining importance with employees and potential hires and investors are increasingly focused on it, expect companies to address it, and will hold them accountable. For these reasons, ESG is important to the board and shareholders as a measure of risk.
I encourage you to take the first, or next step. It’s an iterative and ongoing process, as it should be, as business dynamics change. Without a doubt, investors—and all other stakeholder groups—are paying close attention to ESG and so should you. If you take care of your people, they will take care of your customers. When that happens, there will be better financial performance, driving shareholder value.
Daniel Leckburg is senior vice president of investor relations for CACI International.
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