By: Justin van Fleet, Ph.D., President of Theirworld, Executive Director of the Global Business Coalition for Education

What was once a question of purpose – about whether environmental, social and governance (ESG) was a risk framework or a method of improving performance and producing positive real world outcomes – has become even more existential. This year, an op-ed in the New York Times pronounced that ESG, one of the hottest investment trends, was “a sham.” The year before, the former Blackrock Chief Investment Officer for Sustainable Investing called ESG a “dangerous placebo.”  

At the heart of these critiques is a very real frustration: despite the rhetoric, corporate action is having little impact on the lives of people or the health of the planet. The indicators and metrics informing investment decisions are not as robust as they should be to bring real transformation to society. And even when there is some discernible impact, it can be underwhelming. Take Newsweek’s ranking of America’s Most Responsible Businesses where the “social” aspect of the rankings relied on metrics like employee volunteer hours, charitable giving, and employee turnover. While the metrics are commendable, they are not indicative of radical changes in society.

Historically, despite their limitations, environmental metrics have allowed for better quantitative assessment. Companies have enjoyed the clarity of accounting protocols, the availability of disclosure frameworks, and a robust body of research related to environmental and climate-related risks. Likewise, governance metrics have been widely accepted to measure a company’s commitment to basic practices, standards, and ethical norms. 

In comparison, the social pillar of ESG lacks the same rigor, resources, and standardization, leaving many companies and investors defining, measuring, and reporting social impact differently. Investors are offered lean or inconsistent data that cannot support financial risk analysis and can lead to incomplete assessments of corporate performance on social issues. All the while, metrics used often have little or no correlation with generating sustainable, systemic social impact.  

On top of this, one of the most important social impact tools a company can invest in lacks a firm footing in ESG metrics: education. This past year, K-12 education made up about 14% of U.S. corporate giving. Yet companies that traditionally commit to education as a social impact priority find it difficult to justify and integrate these efforts into environmental, social, and governance (ESG) frameworks. Similarly, ESG professionals do not typically view education as a leverage point to advance their environmental or governance objectives.

This is a pity, because we are in the midst of an education crisis that is damaging to  society and to business. In the U.S., only 26% of eighth graders are proficient in math and less than one-third of eighth graders are proficient in reading. Globally, in low- and middle-income countries, 70% of children are unable to read a simple written text, with losses in learning due to Covid now estimated to inflict a $21 trillion loss in future earnings for today’s generation.

Yet changing these trends in education can have significant and measurable impacts across all ESG priorities. Recognizing and building upon education’s centrality to ESG can help achieve critical ESG goals and improve corporate performance, enhance public perception, and mitigate risks.

A recent report by the Global Business Coalition for Education put forward a blueprint for mapping evidence-based education policies, programs or interventions to address the material risks a company faces and to generate greater societal benefits. It shows how to leverage what is good for society and simultaneously advance business goals, finding a “sweet spot” in ESG which can be transformative.

Education, human development, and training — which encompass policies, programs, and activities ranging from early childhood development and literacy to formal education for marginalized groups and skills for the workforce — present tangible corporate actions and well-researched, quantifiable impact metrics for evaluating performance. The statistics about education’s impact on broader sustainability issues are clear:

• Education drives economic growth, with one additional year of schooling linked to an 18% increase in GDP per capita.
• Education curbs climate change. Closing the education financing gap in low- and lower-middle-income countries could reduce emissions by 51.48 gigatons by 2050.
• Education promotes life-saving health benefits for communities. A child whose mother can read is 50% more likely to live past the age of five, 50% more likely to be immunized, and twice as likely to attend school.

But can a company take action to generate these outcomes in a way that also advances its own interests? I would say most certainly.

For example, the U.S. Chamber of Commerce has reported that one million women are now missing from the workforce compared to before the pandemic. A recent Marketplace report attributed the lack of child care as a reason for not returning to work. This comes at the same time record talent shortages are threatening productivity, particularly in the manufacturing sector where more than two million jobs will be unfulfilled in 2030. 

A company facing a talent shortage could decide to invest in early childhood development and preschools for children of employees. This could have an immediate impact on an acute material risk: talent. Imagine how many more parents and primary caregivers would opt into working if provided with free preschool.

At the same time, the impact of one year of preschool is one of the most important education investments that can be made.  Study after study demonstrates the impact that one year, particularly for children in lower-income households, can have on the likelihood of remaining in school, learning outcomes, later earnings, and even the likelihood of being incarcerated. Through investing in quality preschool (up to the age of five), a company can demonstrate a significant social impact in the community where it operates as well as a direct benefit to itself.

This is just one example, but the possibilities for education in ESG frameworks are endless. By applying a little more rigor to its policies, investments and activities, a company can seriously address the “S” in ESG, as well as having a greater positive impact on the planet. Education is the key that can unlock the potential of ESG, and answer the criticisms the whole practice faces.

Photo credit: Theirworld / Robert Wilk

About the author:

Justin van Fleet, Ph.D. is the President of Theirworld and the Executive Director of the Global Business Coalition for Education. He previously served as the Director of the International Commission on Financing Global Education Opportunity and Chief of Staff to the United Nations Special Envoy for Global Education. He has been a Fellow at the Brookings Institution’s Center for Universal Education.