Guest Post: ESG is Under Fire and Education May Save it
By: Justin van Fleet, Ph.D., President of Theirworld, Executive Director of the Global Business Coalition for Education
What was once a question of purpose – about whether environmentalEnvironmental criteria consider how a company performs as a steward of nature., socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. and governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. (ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.) was a risk framework or a method of improving performance and producing positive real world outcomes – has become even more existential. This year, an op-ed in the New York Times pronounced that ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments., one of the hottest investment trends, was “a sham.” The year before, the former Blackrock Chief Investment Officer for Sustainable Investing called ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. a “dangerous placebo.”
At the heart of these critiques is a very real frustration: despite the rhetoric, corporate action is having little impact on the lives of people or the health of the planet. The indicators and metrics informing investment decisions are not as robust as they should be to bring real transformation to society. And even when there is some discernible impact, it can be underwhelming. Take Newsweek’s ranking of America’s Most Responsible Businesses where the “socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.” aspect of the rankings relied on metrics like employee volunteer hours, charitable giving, and employee turnover. While the metrics are commendable, they are not indicative of radical changes in society.
Historically, despite their limitations, environmentalEnvironmental criteria consider how a company performs as a steward of nature. metrics have allowed for better quantitative assessment. Companies have enjoyed the clarity of accounting protocols, the availability of disclosure frameworks, and a robust body of research related to environmentalEnvironmental criteria consider how a company performs as a steward of nature. and climate-related risks. Likewise, governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. metrics have been widely accepted to measure a company’s commitment to basic practices, standards, and ethical norms.
In comparison, the socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. pillar of ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. lacks the same rigor, resources, and standardization, leaving many companies and investors defining, measuring, and reporting socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. impact differently. Investors are offered lean or inconsistent data that cannot support financial risk analysis and can lead to incomplete assessments of corporate performance on socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. issues. All the while, metrics used often have little or no correlation with generating sustainable, systemic socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. impact.
On top of this, one of the most important socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. impact tools a company can invest in lacks a firm footing in ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. metrics: education. This past year, K-12 education made up about 14% of U.S. corporate giving. Yet companies that traditionally commit to education as a socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. impact priority find it difficult to justify and integrate these efforts into environmentalEnvironmental criteria consider how a company performs as a steward of nature., socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates., and governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. (ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.) frameworks. Similarly, ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. professionals do not typically view education as a leverage point to advance their environmentalEnvironmental criteria consider how a company performs as a steward of nature. or governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. objectives.
This is a pity, because we are in the midst of an education crisis that is damaging to society and to business. In the U.S., only 26% of eighth graders are proficient in math and less than one-third of eighth graders are proficient in reading. Globally, in low- and middle-income countries, 70% of children are unable to read a simple written text, with losses in learning due to Covid now estimated to inflict a $21 trillion loss in future earnings for today’s generation.
Yet changing these trends in education can have significant and measurable impacts across all ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. priorities. Recognizing and building upon education’s centrality to ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. can help achieve critical ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. goals and improve corporate performance, enhance public perception, and mitigate risks.
A recent report by the Global Business Coalition for Education put forward a blueprint for mapping evidence-based education policies, programs or interventions to address the material risks a company faces and to generate greater societal benefits. It shows how to leverage what is good for society and simultaneously advance business goals, finding a “sweet spot” in ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. which can be transformative.
Education, human development, and training — which encompass policies, programs, and activities ranging from early childhood development and literacy to formal education for marginalized groups and skills for the workforce — present tangible corporate actions and well-researched, quantifiable impact metrics for evaluating performance. The statistics about education’s impact on broader sustainability issues are clear:
Education drives economic growth, with one additional year of schooling linked to an 18% increase in GDP per capita.
Education curbs climate change. Closing the education financing gap in low- and lower-middle-income countries could reduce emissions by 51.48 gigatons by 2050.
Education promotes life-saving health benefits for communities. A child whose mother can read is 50% more likely to live past the age of five, 50% more likely to be immunized, and twice as likely to attend school.
But can a company take action to generate these outcomes in a way that also advances its own interests? I would say most certainly.
For example, the U.S. Chamber of Commerce has reported that one million women are now missing from the workforce compared to before the pandemic. A recent Marketplace report attributed the lack of child care as a reason for not returning to work. This comes at the same time record talent shortages are threatening productivity, particularly in the manufacturing sector where more than two million jobs will be unfulfilled in 2030.
A company facing a talent shortage could decide to invest in early childhood development and preschools for children of employees. This could have an immediate impact on an acute material risk: talent. Imagine how many more parents and primary caregivers would opt into working if provided with free preschool.
At the same time, the impact of one year of preschool is one of the most important education investments that can be made. Study after study demonstrates the impact that one year, particularly for children in lower-income households, can have on the likelihood of remaining in school, learning outcomes, later earnings, and even the likelihood of being incarcerated. Through investing in quality preschool (up to the age of five), a company can demonstrate a significant socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. impact in the community where it operates as well as a direct benefit to itself.
This is just one example, but the possibilities for education in ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. frameworks are endless. By applying a little more rigor to its policies, investments and activities, a company can seriously address the “S” in ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments., as well as having a greater positive impact on the planet. Education is the key that can unlock the potential of ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments., and answer the criticisms the whole practice faces.
Photo credit: Theirworld / Robert Wilk
About the author:
Justin van Fleet, Ph.D. is the President of Theirworld and the Executive Director of the Global Business Coalition for Education. He previously served as the Director of the International Commission on Financing Global Education Opportunity and Chief of Staff to the United Nations Special Envoy for Global Education. He has been a Fellow at the Brookings Institution’s Center for Universal Education.
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