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As investors seek socially responsible investments, the “S” in ESG is more important than ever

By Stephan Scholl

ESG - the framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social and governance criteria – is everywhere.

Yet for all the buzz surrounding ESG, there’s still a fair amount of confusion over what the concept actually means – and, frankly, there has been a growing portrayal of ESG as a distraction that pulls companies away from their core mission. Nothing could be further from the truth.

In the simplest of terms, ESG is about being a good corporate citizen and striving to build a sustainable, equitable, healthy and diverse world where essential human needs are met for all. For all the pushback against ESG, it’s important to note that organizations that have ESG deeply embedded in their strategy and purpose routinely outperform their peers and increase shareholder value.

Think about that. ESG initiatives enable organizations to make an impact without sacrificing performance, thus delivering greater returns. That’s really quite remarkable. As that correlation has become more widely recognized, investors, capital allocators and governing bodies are taking notice as socially responsible investing (SRI) is now an important principle guiding investment decisions.

Seeking meaningful investments

As a growing number of investors commit to SRI, they are seeking companies that promote diversity, inclusion, community, social justice and corporate ethics, in addition to fighting against racial, gender and sexual discrimination. This approach also helps investors avoid investing in companies that are engaged in risky or unethical practices.

In 2021, the federal Securities and Exchange Commission (SEC) entered the fore, releasing a proposal that publicly traded companies be required to release metrics related to the Environment pillar of ESG. Similar proposed disclosures are expected for Social and Governance. While nothing is final at this point, the rationale is simple: investors deserve to know whether companies are acting responsibly in safeguarding the environment, managing relationships both inside and outside the organization and engaging in sound board management, succession planning, compensation and security practices.

Granted, ESG hasn’t always been called ESG – that moniker is relatively new – but the principles of Environmental, Social and Governance have long been at the heart of everything we do at Alight. In particular, the “S” – the social factors in ESG.

At Alight, we’re all about improving people’s lives. Our entire business model is grounded in one singular phrase: Powering confident decisions, for life. We accomplish this by providing our clients’ employees with the tools, technology, resources and guidance to make well-informed decisions around their health, wealth and wellbeing, delivering the security of better outcomes and peace of mind throughout life’s moments.

My personal journey with Alight began in April 2020 - just as the world was put on pause due to COVID-19. Over the next three years, I witnessed firsthand the impact the pandemic had on people’s mental, physical and financial wellbeing - and the realignment of their priorities as a result. Employers quickly recognized the need to support their people in ways they had never imagined - and they rose to the occasion, partnering with companies like ours as they committed themselves to caring for their employees’ total wellbeing - one of the key components of the social pillar.

A higher calling

As COVID fears have calmed and recession fears have taken their place, organizations are taking tough actions to help them weather the potential impact. While cost-containment will likely be the order of the day, it’s critically important that C-suite leaders and boards keep a sharp focus on their most important asset, their people.

As we confront the challenge of economic uncertainty, the “S” in ESG has become more important than ever. Yet leaders are under immense pressure to trim the budget – by cutting the workforce, sharing health-care cost increases with employees and paring back benefits, especially those that were introduced or expanded during the pandemic. This includes wellbeing benefits.

In this challenging environment, I believe leaders have no higher calling than to care for the wellbeing of workers and their families. Unfortunately, many companies are falling woefully short of meeting that goal.

Our 2023 Alight International Workforce and Wellbeing Mindset Report revealed that 80% of workers report moderate to high stress levels and 15% often feel completely depleted. With just 41% of employees feeling their employer genuinely cares about their wellbeing, this is clearly not the time to cut wellbeing budgets.

To survive in this environment, employers will need to be laser-focused on supporting employees in their quest to achieve wellbeing across the four pillars of healthy mind, healthy body, healthy wallet and healthy life - grounded in inclusion, all intricately intertwined and interdependent.

Stephan Scholl
Stephan Scholl
By Stephan Scholl

As CEO, Stephan Scholl is responsible for the strategy, growth and business performance of Alight, a leading provider of next-level human capital and business solutions. Over his more than 25-year career, Stephan has created a reputation as a transformational leader, passionate about customer success. He is focused on driving results, delivering value and improving business processes for global organizations by harnessing the full power of leading cloud-based solutions.

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