The scoreboard: the impact of environmental, social and governance and diversity measures on carbon emissions

Stakeholders have become increasingly curious about the way organisations are run. In particular, they demand greater transparency in areas such as environmental, social and governance (ESG) initiatives. In an attempt to hold businesses more accountable for their actions, several stakeholders have taken an interest in these procedures. This puts pressure on the organisation to deliver positive results in this regard. Transparency was something that organisations were not held to previously, but as the extent of the impact of their activities became more widespread, this has changed. Business reports, specifically those around ESG initiatives, are scrutinised more closely even by potential customers. The outcomes of these reports can have significant impacts on the financial performance of the business and its longevity. It can also improve performance on those ESG metrics. It is a well-known assertion that what is measured can be improved, so presenting ESG goals can help firms to achieve them. Organisations that do not live up to the necessary standards are likely to be outperformed in the market. Therefore, this becomes a matter of survival. It is important for organisations to put their best foot forward in this regard, and having the ideal conditions to do so is helpful. Koseoglu et al. (2024) investigated the impact of ESG and diversity scores on carbon emission scores.Businesses are well aware that the composition of their leadership team can have significant impacts on business performance. Therefore, diversity within leadership has become something that many firms strive to achieve. However, this should be applied to all levels of the organisation, as diversity opens the opportunities for innovative ideas and solutions to be made. Not only is creativity fostered in this way but also sends out positive signals to the stakeholders. A diverse workforce helps organisations meet their social responsibility principles. This could improve the overall reputation of the firm, and stakeholders would view the business in a favourable light. However, this must not be done for the purpose of looking good to stakeholders, as such disingenuous actions are easily noticed, and businesses can fail as a result. While diversity is beneficial, it should not be done without careful consideration of the needs of the organisation. The same is relevant when it comes to ESG initiatives. Whether it is the practices or the reporting aspect, organisations should see these as strategic goals and not just secondary elements. Some firms can also manipulate ESG results to portray a more favourable position; however, this will backfire once stakeholders are aware of the manipulation. So it is not just a matter of having these elements in place but making sure they are effective.Firms that score high in ESG and diversity-related metrics are likely to have better firm performance and overall sustainability. This is because they are those that engage with their stakeholders and implement plans that can satisfy their demands and needs. The sustainability and corporate responsibility expectations for organisations have increased greatly; therefore, to keep up with these expectations, the first step is to measure them. Having these scores allows firms to gauge and track their progress as well as discover improvement areas. This can also help identify areas that would have otherwise been ignored, as organisations struggle to satisfy competing needs from various stakeholders. This is how all of these can lead to lower carbon emissions. It is not just the processes, but what they entail that can lead to such results. Higher diversity scores may mean that the organisation has a workforce with various skills and experiences that can be used within the business operations. Additionally, high ESG scores may mean that the organisation has innovative ideas on how to improve their sustainability metrics which will ultimately improve their performance within the market. However, these are not guaranteed outcomes; they are indicators.The measurement of these metrics alone is not enough to push forward performance. If an organisation has these but cannot effectively motivate and manage with workforce, then these are of no use. Therefore, there is still considerable effort needed to tie in all these elements together in a way that is profitable. It is similar to how raw materials are used; their possession does not guarantee the outcome of a great product. There are several other factors and inputs that go into the process to make this happen. Carbon emissions is a critical indicator that many stakeholders are interested in; therefore, many organisations are doing whatever they can do to improve their scores. This is admirable, and it is with this mindset, in addition to ESG and diversity, emissions performance can be improved. There is a need for a holistic approach, rather than looking at each of these as independent metrics. In this instance, the sum is greater than its individual parts and organisations that discover this can take advantage of this opportunity.This review is based on: “Environmental, social and governance assets and diversity scores: exploring their relationship to carbon emissions in global companies” by Mehmet Ali Koseoglu, Hasan Evrim Arici, Mehmet Bahri Saydam and Victor Oluwafemi Olorunsola, published in Management Decision.