Why Technology Companies Must Navigate Muddy Waters of ESG Requirements

The need for more corporate responsibility has evolved for today’s corporations and the next generation of business leaders in the form of environmental, social and governance (ESG) criteria. Investors, activists and regulators are now requiring proactive, community-structured commitment and accountability that is designed to step above shareholder returns. 

Today’s global capital markets aren’t interested in more marketing from companies in every industry. Instead, they are demanding sustainability and eco-friendly business practices as well as a reasonable return. Global technology companies and their executives are hearing this call, and the industry has become more proactive in this movement.  

Why are ESG Standards Needed? 

Although ESG metrics are still trying to find their proper place in today’s standardized financial reporting, that hasn’t stopped technology companies and other industry institutions from making promises and illustrating the proactive nature of their ESG standards.  

What’s needed at this critical step is the ability for companies across all industries to truly quantify their company’s present position relative to investor objectives of integration, values and impact in the areas of governance over environmental and social contexts. American stakeholders and shareholders aren’t interested in window dressing and empty promises only for the benefit of a feel-good investor report. They want to know that companies are holding themselves accountable to the promises and commitments they’re making in these key areas.  

Proxy Advisors Making Unfair Pressures 

Many technology companies specifically have felt their fair share of pressure into adopting more ESG-forward practices. Whether through a reduction of plastic carrier bag usage or gender pay gap reporting, shareholders have certainly brought pressure on a large number of technology companies over supply chain strategies, environmental and sustainability impacts, and gender-diverse practices. This focus has led to a significant overhaul of many business processes alongside the appointment of a new addition to the C-suite – the chief sustainability officer (CSO). Companies inside and out of technology continuously look to leaders in this movement and have started to replicate their operational changes.  

However, making promises about ESG commitments and holding true to them are apparently two different stories for some. Many companies are being pushed into making ESG improvements and commitments, especially through institutional investors and oversight organizations such as Institutional Shareholder Services (ISS). This has led some to wonder whether these proxy advisors have become too focused on ESG issues, have become conflicted, and have broadly too much power over the operation of America’s largest technology companies.  

ISS Hypocrisy over ESG Requirements 

ISS talks a big game on the issues of diversity and inclusion. ISS demanded that publicly traded companies disclose the ethnicity of each and every member of their board of directors. More recently, ISS has been accused of refusing to recommend voting for board slates that they allege do not contain enough “diverse” representation.  

However, it appears that ISS lacks representation from any persons of color. Moreover, it does not appear that its two corporate owners – Genstar Capital and Deutsche Boerse – have even a single person of color on their executive teams. This is troubling given the fact that they have claimed diversity, equity and inclusion are priorities and have asked publicly traded companies and technology companies to make commitments toward those ends. Standards are not only needed but must also be adhered to at all levels. 

Technology Companies Have a Chance to Serve as Models 

Despite the hypocrisy demonstrated by some organizations, technology companies have the opportunity to truly bring about change – not just with their marketing but in the way they go about doing business. In fact, as business models have had to adapt to this new landscape and changed customer behaviors, there has been evidence of the incorporation of ESG elements across the technology industry.  

These moves recognize that it is not solely about making money and preserving the bottom line, but that technology companies have been working toward having a positive societal impact. There is no doubt that these newly implemented strategies have the potential to drive increased valuations, which increases the appetite of investors, but they also attract more qualified people who are extremely committed to the corporate cause into technology companies.  

As more technology companies focus on staying committed to their ESG promises, everyone will win in the end, including customers, stakeholders, investors, the environment and, certainly, employees. These companies will truly serve as models of operation in the future. But we must move beyond promises and hollow commitments; we must develop a new set of ESG standards to level the playing field of reporting.