ESG, SRI and Corporate Social Purpose: A Necessity for the Board of Directors?

With unprecedented crises such as COVID-19 and dramatic climate change, boards must create a strong sense of social responsibility. In addition, structures such as ESG (Environmental, Social, and Governance) and SRI (Socially Responsible Investment) have forced boards to rethink their strategies and implement new goals.

corporate purpose

Corporate governance under pressure

More and more companies have begun to place high importance on having a distinct raison d’être. Many of the most prominent companies in Europe have conscientiously drawn up the values and motivations that define them. There are many powerful benefits to instilling a strong sense of social purpose within an organization. These include:

  • Investor support and corporate purpose

Investor support for a company is greater when there is a business case for its raison d’être. This means not only prioritizing profits but also taking into account other imperatives such as sustainable development. Prioritizing other elements than the simple profit often indirectly leads the company to be more profitable in the long term.

  • ESG criteria and sustainable business strategy

In France, the importance of the raison d’être was also included in the recommendations for investors made by the Institute of Responsible Capitalism (ICR) in 2020. This is in line with the desire of investors to know the vision of the company, with a view to long-term investment. They want to know how the company interacts with its ecosystem, especially in the current crisis. ESG criteria play a key role when we know that these elements allow us to determine a company’s focus on its environment, its governance, and its social situation.

Thus, in order to implement a high-quality corporate strategy, it is necessary to take into account these indications as value generators. The board must include these elements to guarantee the sustainability of the business.

Value-creating reporting

ESG criteria and the company’s raison d’être are all extra-financial indicators. In other words, elements related to the environmental, social, and governance implications of the company. Extra-financial reporting is a major point in the structure’s social responsibility policy towards society and the company’s stakeholders. Today, reporting documents no longer include only financial data, but also a whole set of key information aimed at following indicators such as diversity or ESG initiatives.

Implementing and monitoring these indicators enables the company’s strategy to be better managed. These indicators are critical tools for the company’s performance, which allows it to be more transparent towards its stakeholders while promoting its actions to potential investors.

By doing so, the company can reflect its commitment to today’s issues and demonstrates its responsibility towards its surroundings.

Correlation between financial and non-financial indicators

When it comes to economic performance, it is necessary not to create a strict divide between financial and non-financial indicators. Indeed, these two themes can perfectly intertwine to create a positive synergy in favor of the company. This is notably the case for sustainable governance, which impacts the company’s overall performance by taking care to avoid corruption or the lack of gender diversity.

Non-financial indicators help reduce costs, for example by optimizing water and resource consumption and by adopting a better logistics organization. They also increase revenues, for example by recovering waste or by integrating a quality approach to products to meet customer expectations. These indicators also help improve the company’s image and reputation, since stakeholders will be sensitive to the efforts made to reduce environmental impact and encourage social initiatives and better governance.

Finally, the company gains in attractiveness to investors since these extra-financial initiatives limit the financial risks to the company due to poor environmental, social and governance management.