ESG and Associations

By Donna Oser posted 08-10-2022 08:02

  


ESG (Environmental, Social, Governance) has gained considerable traction in the past five years. As a result, association leaders have good reason to be cognizant of ESG. While the framework has generally been used to evaluate investments, it may also be used as a framework to determine association membership. 

What is ESG?

ESG is described as a framework that helps stakeholders understand how an organization manages risks and opportunities around sustainability issues. McKinsey defines each aspect as follows:

Environmental criteria include the energy a company takes in and the waste it discharges, the resources it needs, and the consequences for living beings as a result. E encompasses carbon emissions and climate change. Every company uses energy and resources; every company affects and is affected by the environment.

Social criteria address the relationships a company has and the reputation it fosters with people and institutions in the communities where it does business. S includes labor relations and diversity and inclusion. Every company operates within a broader, diverse society.
 
Governance is the internal system of practices, controls, and procedures a company adopts to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. Every company, which is itself a legal creation, requires Governance.

Advocates and critics of ESG are equally passionate, and the arguments for and against ESG are complex. In general, ESG proponents say the framework allows investors to place their dollars with like-minded companies and advance progress in these areas. Detractors argue that the framework distorts the market by rewarding (potentially) poor financial performers and is used to drive an extreme agenda beyond ESG factors. 

Associations and ESG 

In the growing demand for transparency, trade association members may be scrutinized for their affiliation with associations that advocate or lobby for agendas that are contrary to what the member espouses as their platform. Ergo, the member's join/don't join decision may be based on public perceptions of the trade association, the trade association's platform, or its lobbying track record. (There is no current disclosure requirement for association membership/affiliation in the US, but voluntary disclosure often occurs on the member and the association side.)

Representing Industry 

The ESG movement, like those that have come before it, is a reminder to association leaders to remain vigilant of the larger environment their members do business within and maintain close connections to the industry and members to ensure coherence across the association, its members, and the industry.   

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