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Digging into the details of ESG

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I must temporarily overcome my hatred of acronyms by mentioning a common one: ESG.

It is a buzzword found almost everywhere in the business world.

ESG stands for environmental, social, and governance issues. It has to do with how companies meet the interests of stakeholders—people whose lives are affected by a company’s business activities.

Until a very few years ago, companies tended to act as if shareholder value (often simplistically equated with stock price) was the only thing that they needed to bother about.

richard smoley produce blueprints

Finally, the business world acknowledged that this was a short-sighted, not to say selfish perspective. Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’ | Business Roundtable

Enter ESG.

It is a way of examining the larger impact of a company’s business operations.

Fast Company gives a concise and useful summary of what ESG means or is supposed to mean. What does ESG stand for? (

Environmental issues of course have to do with a business’s ecological impact. In practice, however, it often focuses on contributing to efforts to slow the pace of climate change.

Social concerns have to do with whether a company, for example, buys from exploitative suppliers. Or whether the company is taking adequate measures to ensure diversity in the workplace.

Governance has to do with “oversight, handled by a competent and qualified board of directors, regarding the hiring and firing of top corporate leaders, executive compensation, and any dividends paid to shareholders.”

Many of those who object to ESG goals do so on the premise that they will harm company profits.

To this end, Fast Company pointed to a study done by two New York University professors that addressed the effect of ESG practices. ESG and Financial Performance – NYU Stern

Their findings conclude that ESG investing does or can have a positive effect on profitability, for example “providing downside protection, especially during a social or economic crisis.”

Furthermore, “sustainability initiatives at corporations appear to drive better financial performance due to mediating factors such as improved risk management and more innovation.”

Most importantly, perhaps, “improved financial performance due to ESG becomes more noticeable over longer time horizons.”

This is not entirely good news, since many business decisions in America focus—often excessively—on short-term results. Largely because investors tend to do the same.

Looking over all this, I don’t find it as inspiring as it might be.

It is all very well to avoid purchasing from exploitative suppliers, for example, but I would be inclined to emphasize other social goals. A company’s first obligation in this area, in my opinion, is to provide fair and even generous pay and benefits, as well as decent working conditions, for its employees.

Climate change is of course a great concern, but again, it would seem more sensible for a company to make sure first and foremost that it is cleaning up its own environmental messes.

I often think that what the human race needs right now is a Big Momma to step in and say, “This place is a pigsty! Clean it up!”

It is my totally and completely unresearched opinion from talking to people in the produce industry that (at least some) family-owned companies pay more serious and concerted attention to ESG issues than, perhaps, publicly held ones. Nepotism and the family business – Produce Blue Book

Of course, I could be wrong. But family enterprises tend to look upon their operations as an extension of their families as such and to realize how such impacts reflect on them.

ESG impacts certainly reflect on all businesses. But that might be a little harder to care about when your ownership of a company, to all appearances, consists of a line or two on your stock portfolio.


Richard Smoley, contributing editor for Blue Book Services, Inc., has more than 40 years of experience in magazine writing and editing, and is the former managing editor of California Farmer magazine. A graduate of Harvard and Oxford universities, he has published 12 books.