CSR Intern Reflections: The Logic of ESG in a Corporation

By Cooper Limon — Bachelor of Science in Environmental Policy and Management, University of California, Berkeley

Shareholders, communities, and consumers have made it clear that the corporations they want to support should have a positive impact on society. Shareholder pressure to improve a company’s social impact is supported by many academic studies that have found a positive correlation between strong Environmental, Social, and Governance (ESG) scores and Corporate Financial Performance (CFP). Additionally, a Price Waterhouse Cooper report found that 83% of consumers think businesses should be actively shaping ESG best practices and 76% of consumers said they will discontinue relations with companies that treat employee's, communities and the environment poorly. 

As a Corporate Social Responsibility (CSR) intern at Keysight Technologies, I have seen the many ways in which ESG is valued, from products and solutions to sustainable operations improvements, governance and policies, volunteerism and philanthropy, and so much more. Besides the studies that have been conducted proving the linkages between company success and ESG performance, the question for many remains about the connections between ESG and CSR and the business-facing logic of sustainable business.

Logic of ESG Performance 
Both CSR and ESG focus on environmental sustainability, social impact, and ethical governance efforts such as: energy and waste management, employee treatment, diversity, climate-risk management, and local community impact. CSR is recognized as the business framework that companies implement to manage impacts on stakeholders and improve company sustainability. While ESG is a criterion that investors and rating agencies use to measure a company’s risk management strategies, long-term growth potential, and material impact exposure. Well-developed CSR practices are deeply linked with a firm’s ESG performance and the related impacts of the corporation’s products, services, operations, value chain, and workforce.

At the core of the ESG movement is the re-emergence of multi-stakeholder capitalism and the logical connection between corporate ESG performance and key stakeholders: 

• Employees today want to work at a place where they feel as though they are having a positive impact on the world and the company's ethics are tied to their own values. Conversely, companies want to attract the highest-value employees and by aligning corporate values to that of their target workforce, companies too can stand to benefit in the hiring process.
• Shareholders want long-term, low risk profits and high ESG scores that have demonstrated a positive correlation with corporate financial performance, while also maintaining lower risk than conventional investment approaches. However, because ESG disclosures in the past have been largely voluntary and the methodologies and data used by rating agencies was not entirely comparable, comprehensive, and auditable, critics have poked holes in the causal relationship previously assumed between high ESG scores and low risk, high return companies. 
• Customers in business-to-business relationships and business-to-consumer relationships now demand to engage with corporations that have a solid ESG basis to either meet their own sustainability goals or just to consume in a conscientious manner. 
• Local communities tend to prosper and support businesses in their communities who are cognizant of their impacts, both positive and negative. Well-taken care of communities also provide strong employees who are healthier, happier, and prosperous.

ESG Valuation in the Markets & CSR Linkage 
As the logic of ESG continues to disseminate and academic papers confirm these theories, the international capital markets will also continue to value ESG performance. Bloomberg and other reputable sources are expecting ESG assets under management to grow from the $35 trillion USD recorded in 2020, to $50 trillion USD by 2025. Institutional investment firms are now stressing the importance of the ESG investment trend for its pressure towards making companies operate in a more sustainable manner and for the provision of greater capital funding to companies that are trying to have a positive impact on the world. 

The flood in capital towards ESG assets is evidence that corporate sustainability and ethical governance are not marketing ploys or charitable actions, they are necessary traits that companies with long-term business plans, lean cost structures, resilient supply chains, proven crisis management processes, and favorable public sentiment all have. 

CSR — sometimes referred to as corporate impact or sustainability — provide the business function framework to address and account for a company's impacts on the environment, economy, and society. To achieve high ESG performance, CSR frameworks and practices must be embedded within the company at the core of their value proposition and extend from the board and C-Suite through to employees and across the value chain. 

ESG & CSR at Keysight
Social Responsibility is a key value in the Keysight Leadership Model and the CSR team works to ensure that the company is operating in an ethical and environmentally friendly manner. Keysight has embraced the logic of ESG performance and the value of sustainability through engagements with key stakeholders across employees, shareholders, customers, and local communities. As such, the company is currently included in more than 25 ESG stock indexes, which track sustainability performance and are based off complex ratings methodologies. 

Through my experiences this summer as a Keysight CSR intern, it has become apparent to me that ESG performance and transparency are logically connected to financial performance, innovation, and stakeholder satisfaction.