The global shout for greater social justice hasn’t landed on deaf ears inside the C-suite. Smart executives are listening, learning, and changing longstanding practices that have caused decades of harm to people.
In short, they are prioritizing the “S” in ESG — an acronym that stands for environmental, social, and corporate governance.
“The S or the social factor is really about people,” Wharton management professor Witold Henisz said. Employees, supply chain partners, customers, and the larger community are all affected by the operations of a firm, so prioritizing them depends on which group is most important.
“It’s really the salience of these different groups that’s going to drive the allocation of resources at the corporate level,” he said.
Henisz spoke during a December 6 panel discussion titled “Humanizing ESG: Why Diversity, Wage Inequality, and Workers Rights Deserve Our Attention.” The virtual event was part of the ongoing Beyond Business series, which explores the most complex and pressing issues affecting organizations and individuals around the world. An expansion of the Wharton School’s Tarnopol Dean’s Lecture Series, Beyond Business is streamed live on Wharton’s LinkedIn page. (See video below.)
Wharton Dean Erika James led the discussion, which also included John Streur, president and chief executive officer of Calvert Research and Management, and Andrew D. Plepler, global head of ESG for Bank of America.
In 2020, Bank of America responded to the civil unrest sparked by the police murders of George Floyd and Breonna Taylor by launching a five-year, $1.25 billion initiative to advance racial equality and economic opportunity. As one of the largest financial institutions in the country, the bank recognizes its role in creating better financial access for marginalized groups.
“I think for most companies, you’d be pretty tone-deaf if you didn’t absorb what we lived through in 2020 — both through the pandemic and social injustice issues we confronted. And we [at BOA] were no different,” Plepler said. “These issues are not separate from what we do all day. I think it was an awakening to examine all of that.”
But the pressure didn’t just come from the outside. Plepler said the events also touched off conversations inside the company from employees who wanted BOA to do better. They demanded the bank close its pay gap and improve its track record on diversity, equity, and inclusion (DEI). As a result, BOA raised its minimum wage to $21 an hour, kept health insurance premiums flat for the lowest-paid associates, and increased its diversity hires.
Creating a more equitable workplace isn’t just the right thing to do, Plepler said, it’s the practical thing to do.
“When you talk about attracting and retaining the best people, you are not going to do it today if you don’t have a good answer to the question” about how the company treats its workers, he said. “Employee satisfaction is a real driver of the success of companies these days.”
“ESG isn’t about ideology. It’s about economics.”–Witold Henisz
Streur made headlines in 2020 when he said that ending racism was the responsibility of corporations. More than a year later, he stands by his remark.
“The reason I made the statement is that we think that racism and companies’ ineptitude in terms of dealing with DEI well is hurting value, destroying value for shareholders,” Streur said.
His investment firm gathers empirical evidence to build the business case for ESG. He said American demographics are shifting, so it is imperative for companies to recruit more women and people of color. After starting an activist campaign, Calvert persuaded 70 companies to release their demographic data and create the kind of transparency needed for responsible investors.
“We’re coming at it from a perspective of trying to improve value for shareholders while helping companies solve this problem associated with their inability to create this attractive career path and workplace, particularly for mid-career employees,” Streur said.
Henisz is also making the business case for ESG through his research. His studies have linked social factors to risks for mining companies, infrastructure projects, and municipal finance.
“Throughout the body of my work, I’ve been finding ways of bringing data to bear to help make this business case and convince people that ESG isn’t about ideology. It’s about economics,” he said.
Henisz believes that employee treatment will become a paramount issue as the COVID-19 pandemic subsides. The pandemic exacerbated inequalities in health and safety for workers. Those same workers are now ready to walk away from employers who haven’t been protecting and supporting them through one of the toughest times in recent history.
“COVID has magnified a lot of stress felt by employees. It’s been a stress multiplier,” Henisz said. “As we emerge from the COVID crisis, I think workers are going to remember how they were treated by their employer in a time of crisis.”
Learn more: To build on the conversation summarized here and in the Beyond Business series more broadly, enroll in Wharton’s online specialization in ESG offered via Coursera with Wharton Professors Witold Henisz, Sarah Light, Mae McDonnell, and Chris Geczy. Pre-register for the first course now.