ESG Standards are TBD in Health Promotion: What the ESG Movement can Learn From the Workforce Wellness Movement

Environmental, Social and Governance Funds

In an investor bulletin published by the SEC, it is clear that ESG criteria are still in the formative stages. That is, no specific standard measures have been issued, so each of the ESG categories are based on examples that a company “might focus on.” ⁴ The environmental component may be based on pollution metrics or energy use. The social component could be based on human rights, employee health and safety or community investments. The governance component could include the composition of board members, shareholder rights or ethics. And while the SEC isn’t definitive about what ESG measures matter most, they are clear that overstating or exaggerating ESG claims, called “greenwashing,” is something they will challenge. Indeed, they brought charges against an investment advisor firm that “implied in various statements that investments… had undergone an ESG quality review, even though that was not always the case.” ⁵ That case has since been settled.

In March of this year, President Biden issued the first veto of his term in our country’s highest office. It was not to reject legislation relating to a basic human right or social justice issue. Rather, he first wielded one of his highest powers so that investment fund managers would not be prevented from basing investment evaluations, in part, on how a company is performing relative to ESG issues. The SEC notes that ESG investing “may be referred to in many different ways, such as sustainable investing, socially responsible investing, and impact investing. ESG practices can include, but are not limited to, strategies that select companies based on their stated commitment to one or more ESG factors —for example, companies with policies aimed at minimizing their negative impact on the environment or companies that focus on governance principles and transparency.” I underlined the ‘not limited to’ caveat because ESG detractors have characterized ESG investing as ‘woke capitalism’, a strategy to advance liberal causes and block investments in select companies.

In practice, there is nothing about ESG scorings or ratings that would prevent investors from investing in the dirtiest of companies. Indeed, the more specificity that is brought to ESG definitions, the more investors can deliberately choose to invest in either socially responsible or irresponsible companies. In his seminal paper about corporate social responsibility (CSR) and ‘the paradox of social cost’, Moses Pava noted that the “distinction between legitimate and illegitimate corporate social responsibility activities has not been clearly drawn.” ⁶ Just as best practices scorecards have helped researchers and practitioners understand the factors that differentiate effective from ineffective worksite health promotion initiatives, clearly defined ESG measures should enable investors to better assess what constitutes the kinds of corporate social responsibility activities that lead to improved financial performance. In 1995, Pava included the provision of employee wellness offerings in his list of factors that constitute a legitimate feature of socially responsible companies. Pava studied 53 companies that rated high in their CSR efforts and, applying traditional accounting criteria, concluded that these firms fared as well as or better than control companies matched by size and sector.

Company Well-Being Scorecards as Tools for the “Social” Category

Acceptance of ESG measures as predictors of positive financial performance will come easier once studies using standard ESG measures are more commonplace. ESG advocates would do well to learn from the evolutionary journey of the use of corporate wellness best practices scorecards. One study of the validity of the use of a scorecard to predict health care cost and health risk trends found that those with high scoring wellness programs had significant reductions in health care costs compared to low scoring companies. ⁷ Subsequently, scorecards have been used to demonstrate the role of employee health promotion in boosting shareholder value. One study, for example, found significantly higher six-year stock performance values for companies with high scores in the HERO Health and Well-Being Best Practices Scorecard in collaboration with Mercer© compared to the S&P 500 Index of like companies during that period. Specifically, stock values appreciated by 235% for high scoring companies compared to 159% for comparison companies. ⁸ Another study compared 26 companies that won the C. Everett Koop Health Award for their wellness programs with the average performance of other companies in the S&P 500 Index. Over the 14-year period in this study, companies that were Koop winners had stock values increase 325% compared to an average appreciation of 105% for the comparison companies. ⁹

Similar to the time period during which the worksite wellness movement gained inertia based on research showing well-designed programs produced a positive return on investment, the ESG movement is now gaining steam as more evidence is accumulating that the stocks of companies with higher ESG scores are outperforming the financial returns from companies with lower ESG scores. One meta-analysis of 1141 studies by NYU Stern Center for Sustainable Business found that 58% of companies with high ESG factors were significantly more likely to have positive financial performance. Interestingly, this study showed that even disclosure of ESG factors alone, in 26% of studies, was positively correlated with financial performance. However, even greater performance advantages were associated with companies using “performance based ESG measures,” that is, efforts to report on improvements on issues such as reducing greenhouse gas emissions. ¹⁰

Are They now Green Hushing?

Narrowing in on validated and agreed upon ESG measures will be needed in order to amplify the benefits of ‘legitimate’ CSR. To this end, integration opportunities between worksite wellness scorecards and ESG measures should be explored. Such overlaps could readily fall within the ‘social’ category of an ESG accountability report. Many have observed that the need for deeper connections between employee wellness initiatives and ESG issues became more apparent during the pandemic. In a paper arguing that a culture of health has become a key factor in career decisions, Baptista and Gunther write: “COVID-19 and all its labor complications — from mental health crises to shrinking talent pools — have put ESG front and center for the many organizations concerned with their people’s health and well-being.” ¹¹ A well-designed contemporary scorecard will assess the role a company is playing in providing mental health services and addressing social determinants of health. However, as more emphasis is placed on social issues vs personal health issues, the more politically polarizing the use of ESG factors is likely to become.

Contrasting views on the role companies can play in addressing health issues are nothing new. Many will always cast the role of companies as that of growing capital and returning shareholder value. Profit maximizers may hold that the challenge of solving social ills is best left to churches, politicians and the public sector. The ESG movement, in contrast, holds that returning value to shareholders, employees, customers and the communities they serve is a way to do business that is better aligned with what all of these stakeholders say they value: a company that cares about people and the planet as much as profits. In 2019, the Business Roundtable sought to “promote an economy that serves all Americans” and released a statement that redefined the purpose of a corporation. Today’s corporation should not only be accountable to shareholders but also should have a “fundamental commitment to all of our stakeholders.” This acknowledgement of the primacy of stakeholder values included investing in employees’ training and education; fostering diversity, equity and inclusion; supporting communities; protecting the environment; and treating suppliers fairly and ethically. ¹² The statement was signed by 181 CEOs who made this commitment to “lead their companies for the benefit of all stakeholders.” Skeptics have noted that these signatories represent a miniscule fraction of corporate America. Nevertheless, many of the companies they lead are coveted brands that have an indisputable record of understanding what consumers want.

The ESG categories described by the SEC are closely aligned with the Business Roundtable’s depiction of how companies can contribute to a sustainable economy. That is, the alignments looked obvious in 2019 when the statement was widely circulated and discussed. In 2023, Republicans, according to Fortune Magazine, are “united against ESG investing.” Indeed, Vivek Ramaswamy, a biotech investor and asset manager, is running for President of the United States on a platform opposing ESG investing. His investment firm offers “proxy services to fight back against corporations’ ESG goals.” ¹³ Other potential candidates for President, DeSantis, Haley and Sununu, like candidate Trump, have all declared their opposition to ESG investing. This year, the political ruckus is having an effect on how ESG investing is being discussed. Time will tell whether this is simply the latest in rhetorical posturing between political parties or a fundamental shift in how the parties are aligned, or not, with business leaders.

Larry Fink is the Chairman of BlackRock, a leading fund management firm. His annual letter to investors is parsed carefully by many in business but few read it more carefully in the context of ESG trends than Ken Pucker, a Professor of Practice at the Tufts Fletcher School. In a LinkedIn post, Pucker noted that ESG did not appear once in the 2022 letter where in the 2021 BlackRock letter he, Fink, wrote that “purposeful companies with better ESG profiles have outperformed their peers.” Pucker went on to note that Fink’s letter only used the word ‘green’ once, that ‘climate’ and ‘carbon’ only get mentioned halfway into the letter, and that Fink repeatedly makes it clear that asset managers should “NOT be the environmental police.” Pucker concludes that Fink’s letters had a “big change in tone, promise and role of ESG. Muted and chastened.” ¹⁴ There were more than 60 commenters following on Pucker’s summary of Fink’s letter. One commenter, freelance journalist David Burrows, captured the gist of many when he asked: “are they now green hushing?”

Shared Values and Community Well-Being

It should come as no surprise that even fund managers bullish on ESG investing also want to avoid losing the business of customers who are solely focused on financial returns. Fink’s letter makes it clear that they are eager to serve every kind of investor, regardless of ideological beliefs or preferences. I’m doubtful this positioning to serve all comers can be reduced to ‘green hushing’ any more than repackaging a food amounts to ditching the recipe. It may be the case that the ESG nomenclature has become so laden with misinterpretation and divisiveness that health promotion and public health professionals eager to advance ESG related measures and collaborations will need to rebrand or unbundle each ESG category. Sara Johnson, this journal’s co-editor of our “Knowing Well, Being Well” (KWBW) section, led a team of author contributors in an issue she titled “Creating Shared Value to Advance Racial Justice, Health Equity, and Meaningful Action in Climate Change.” ¹⁵ This is an open access section of this journal so I encourage our subscribers to be generous in sharing KWBW with your networks.

In Johnson’s KWBW issue discussing how organizations can create shared value there were five articles, and though all were written less than two years ago, the ESG acronym was not used by these authors. Instead, B corporations, sustainable development goals, stakeholders and stewardship were the watchwords. In a contributed article by Pitts and colleagues, a business framework is described according to “the well-being of people; the well-being of places; and equity and racial justice.” ¹⁶ Review the extensive lists of examples in each of these domains and you will see they mirror the ESG categories proffered by the SEC. Also in the “creating shared value” issue of KWBW, Johnson interviews Joe Kenner who is the President and CEO of Greyston, a bakery that has become nationally known as a model B Corp and leader in workforce development. B Corp is a legal designation for for-profit companies committed to social and environmental performance, and Greyston exemplifies this mission-driven approach with their Open Hiring® model. Kenner recently won a “Social Innovators of the Year” award for social entrepreneurship, and he spoke this year at the World Economic Forum in Davos about Greyston’s first-come, first hired policy which requires no resumes, interviews or background checks.

In Johnson’s KWBW interview article she asked Kenner about the connection between business success and shared value, and Kenner enthused, “I tell people all the time, this is not a feel-good kumbaya program, it’s not a social service program. It is a business strategy, and any business strategy requires investment and it’s an investment in this next evolution of human resources and looking at how we hire, how we take care of our employees in a totally different and holistic way.” ¹⁷ As I was writing this editorial just over a year after that interview, I received Greyston’s monthly newsletter, delivered in March on B Corps’ celebration month. In his column Kenner continues to celebrate his company’s success stories but also offers a cautionary note: “Anti-ESG legislation could have a chilling effect on B Corps, conveying that social and environmental impact is unimportant. These policies would perpetuate the status quo of an economic system that is unjust, inequitable, and unsustainable.” ¹⁸

The trend I described earlier concerning our profession’s shift from individual interventions to system change work comes with a crucial caveat. We’re far from having replaced one with the other. In an impressive scoping review of individual vs organizational stress reduction strategies, Dale and colleagues looked at over ten thousand studies published between 2007 and 2017. More amazing than their finding that only 37 studies met their eligibility criteria was their finding that 33 of those 37 studies were focused on the individual, not the organizational, level. ¹⁹ Could better integration between corporate well-being scorecards and ESG measures lead companies to more systemically assess why burnout is occurring in their organizations? And what about the aforementioned research I noted where meaningful weight loss occurred because of environmental changes? The authors of that study wrote an unusually coy, and discouraging, conclusion: “Finally, one might argue that the unique nature of the workplace in this study, which permitted a closely monitored dietary intervention for a period of two years, makes it difficult to generalize the results to other free-living populations.” ²⁰ It is disheartening to admit that a company that provides healthy foods is one with a ‘unique nature.’ But might well designed ESG standards be influential enough to spawn systemic changes in foods produced by big corporations and provided by schools, workplaces and governmental organizations? And can such measures be designed in a way that those in favor of preserving ‘free-living’ don’t feel they are a part of a nanny state?

Designing interventions aimed at changing lifestyles raise worthy questions about how companies with a ‘unique nature’ can also foster autonomy, motivation, voluntariness and agency. After all, behavior change is tied to knowledge, attitudes and beliefs, so judicious program planners are guided by ethics and informed consent. In comparison, building public health policy and environmental changes requires not only the understanding and ascent of an individual, but usually awaits the buy-in and support of citizens and community leaders alike. That’s why there has always been state level and community level variation in acceptance of, or resistance to, public health measures like speed limits, helmet laws or gun control regulations. That the ESG movement has been reduced by many to ‘woke capitalism’ does not mean that the ingredients have gone bad. It may mean, though, that we haven’t found a recipe that suits enough appetites. Julia Child’s advice seems fitting when it comes to mixing shared values, ESG categories and health promotion: “try new recipes, learn from your mistakes, be fearless, and above all have fun!”