Everyone is talking about ESG, what is it and why does it matter to Axon
May 19, 2021
Environmental, Social, and Governance (ESG)-It’s one of investing’s hottest acronyms and possibly the most meaningful one to ever enter the foray of assessing a company’s culture, values and impact on our society. Yes, it’s that big. ESG is the platform for the financial markets to focus on sustainable and impact investing with related assets accounting for over 30% of total U.S. assets under management. Some of the most prominent investors have applied ESG mandates to their portfolios. Close to 90% of S&P 500 companies are now publishing ESG and CSR (Corporate Social Responsibility- related, not quite the same) reports. Both ESG and CSR are becoming important measures for overall business success as customers, employees and the broader community use these as standards by which to hold businesses accountable.
If you are an employee of a company with an ESG Report, start paying attention to it. As an employee or potential employee, you invest your talents and time just as investors invest capital.
When Axon started focusing heavily on ESG in late 2019, we were admittedly a bit lost. We felt pressure to be compliant, but also genuinely wanted to get it right. So, we took a breath and spent last year conducting extensive research to better understand what was expected of us. It turns out ESG wasn't as new as we initially thought. It was well established. Socially responsible investing, or SRI, dates back to the 18th century when it was used as a protection against investing in companies or products that didn't align with personal beliefs or values. SRI started to gain traction in the 1960s as the Civil Rights Movement gained steam, and after over 50 companies participated in a joint initiative to integrate this investing style into the capital markets in 2004, an add-on acronym was applied. ESG investing had begun.
So what caused the seemingly sudden skyrocket in ESG investing over the last few years? Could it be due to BlackRock CEO Larry Fink's well-known 2020 Letter to CEOs that called for public companies to enhance their sustainability-related disclosures? Or was it due to Business Roundtable's 2019 publishing statement that redefined corporate purpose and outlined the modern standard for corporate responsibility? I believe it was and is due to our fast-paced and rapidly changing world. To survive in an evolving world, we must discuss and better understand ESG's core principles. That's the exciting thing about ESG. To discuss these core principles, we must first understand what ESG truly is.
ESG stands for Environmental, Social, & Governance, and it's a set of criteria in which a company is measured against based on its overall operations and performance. Each section -- environmental, social and governance -- has a corresponding list of different reportable metrics that a company can choose to disclose. It's important to note that not every metric is relevant to every company's operations. Thankfully, SASB, or the Sustainability Accounting Standards Board, does some of the hard work for us by telling companies which metrics they should focus on based on their sector and the potential risks relevant to their business. We relied heavily on SASB's frameworks in our most recent report and will continue to utilize them as a guide as we improve.
It's also essential to understand ESG holistically and how each piece of the landscape fits the puzzle. Once a company publishes an ESG and/or CSR disclosure, rating agencies such as MSCI and Sustainalytics then use the disclosures to track and grade the company's performance on their ESG metrics and, subsequently, publish an overall rating based on their findings. The ratings are then shared with the investment community, who can use them as a data point to make informed investment decisions. Naturally, the ratings are significant, but so is hearing directly from companies and their management teams.
So why does it all really matter? It's simple. Stakeholders want to see companies doing good, and when a company is performing well across each of the ESG areas, it is a reflection of their commitment to long-term sustainability. The world is evolving, we are evolving, and so should the way we operate, manage and view business functions. Companies must drive change and work towards bettering their business and the world around them. ESG ratings and disclosures are a gateway to understanding how much a company truly cares about environmental, social and governance-related issues. MSCI estimates over the next two to three decades, the millennial generation could put between $15 trillion to $20 trillion into U.S.-domiciled ESG investments. This investor base asks that their investments go beyond financial returns to include mission-driven practices aimed at creating positive societal change.
Stakeholders across the board want to know that companies prioritize critical topics and employees and potential candidates are passionate about innovating toward:
- equitable processes and practices
- well-managed teams representing the community at large
- enhanced data privacy and security to protect our web-based lifestyles
- embracing diversity and inclusion opportunities
- implementing environmentally-conscious practices
We can only do this through unity, awareness, and transparency. Having a united yardstick is a huge step.
As a bi-racial woman, I don't often see people in the workplace who look like me or have similar life experiences. I want that to change. I want to be sure my teams, peers and myself feel a sense of community, are experiencing equity and inclusion, and benefit from the hard work we're contributing to daily. I want to see sustainable business practices and thoughtful decision-making that considers all stakeholders. I want to protect our earth. And I want to know businesses both big and small care about these things too.
Do you care about ESG? If not, you should. Our future relies on it.
Check out the Axon 2021 ESG/CSR Report HERE and let us know what you think. We would love to hear from you!
ESG criteria are an increasingly popular way for investors to evaluate companies in which they might want to invest.
ESG Reports are a deep view on value systems within a company, and a great way to determine if a company is aligned with your values when seeking a role.
ESG criteria can also help investors avoid companies that might pose a greater financial risk due to their environmental or other practices.
Environmental criteria may include a company’s energy use, waste, pollution, natural resource conservation, and treatment of animals. The criteria can also be used in evaluating any environmental risks a company might face and how the company is managing those risks.
Social criteria look at the company’s business relationships. Does it work with suppliers that hold the same values as it claims to hold? Does the company donate a percentage of its profits to the local community or encourage employees to perform volunteer work there? Do the company’s working conditions show high regard for its employees’ health and safety? Are other stakeholders’ interests taken into account? What does the company’s supplier and employee diversity look like?
With regard to governance, investors may want to know that a company uses accurate and transparent accounting methods and that stockholders are given an opportunity to vote on important issues. They may also want assurances that companies avoid conflicts of interest in their choice of board members, don't use political contributions to obtain unduly favorable treatment and, of course, don't engage in illegal practices.
About the Author: Angel Ambrosio joined Axon in 2017, relocating from Chicago to Scottsdale, AZ. A key member of the company's investor relations team, Angel also manages Axon's Environmental, Social, and Governance (ESG) initiatives. Prior to joining Axon, she worked in a variety of roles with a focus on communications and relationship management. Ms. Ambrosio is pursuing her degree in Interdisciplinary Studies and Business from Arizona State University. She is passionate about promoting change and helping to create an environment where everyone feels welcome and is empowered to find their voice.