7 minutes
How directors can help meet the growing demand for ESG
There are great reasons for credit unions to be on top of the “environment, social and governance” trend now taking hold in boardrooms around the world. These reasons include protecting the Earth, helping more people, better leading the organization—and meeting rising consumer expectations.
Environmental
You might think a pandemic would make people focus on human health more than the health of the planet. But a July report from BCG found that people are more concerned than ever before about addressing environmental challenges.
About 70% of survey participants said they were more aware now than before COVID-19 that human activity threatens the climate and that degradation of the environment, in turn, threatens humans. In addition, 87% said companies should integrate environmental concerns into their products, services and operations to a greater extent than they have in the past. Notably, the commitment to sustainability is even more pronounced among younger people, whom credit unions actively want to add and retain as members.
Social
A June 2020 report from Harvard Business Review cites research showing that companies with effective corporate social responsibility programs are more profitable than those without them. Over the last 50 years, corporations have relied on such corporate social responsibility programs as social issue marketing, philanthropic efforts, employee volunteer initiatives, and diversity and inclusion work, to build their brands and satisfy customers. But now, the report asserts, consumers and employees are raising the bar.
The killing of George Floyd by a white police officer in Minneapolis in 2020 has driven one of the largest protest movements in recent memory, and as a result, consumers and employees are now looking for more than corporate social responsibility. They’re looking for “corporate social justice”—a reframing of CSR that centers the focus of any initiative or program on the measurable, lived experiences of groups harmed and disadvantaged by society.
Corporate social justice is a framework regulated by the trust between a company and its employees, customers, shareholders and the broader community it touches, with the goal of explicitly doing good by all of them. CSJ requires deep integration with every aspect of a company’s operations.
Governance
Of course, governance refers to the processes and structures that boards put in place to help them better set the vision of the credit union and oversee its direction from a high level. Having good governance means a board is doing such things as thoughtfully structuring its committees, striving to prevent and root out conflicts of interest, managing the credit union’s CEO work and compensation, and regularly refreshing its own composition, looking closely at diversity of thought as well as race, ethnicity, gender and life experience.
Many people think ESG is solely a strategy to use when choosing investments or making a plan for charitable giving, but actually ESG is much larger. To be fully effective, ESG must permeate the larger schema of board work. Top leadership needs to embrace the idea that seeds planted by the board will grow throughout the whole organization.
It’s pretty clear that credit unions can’t rest on their good reputations with their communities when it comes to delivering on consumers’ heightened expectations that organizations will demonstrate commitment and action on ESG. So what should credit union boards do? Experts from the companies sponsoring this report have provided some ideas to get you thinking and whet your appetite for action.
Idea No. 1: Look Within
Kenny O’Reilly suggests that a good first step for directors to take in looking at ESG is to look at their own activities. “Ask yourself whether the board could do its business in a more environmentally/socially sound manner,” says O’Reilly, president of MyBoardPacket, a CUES Supplier member based in Arroyo Grande, California.
A board portal like MyBoardPacket.com can help a board both reduce its own environmental impact—and at the same time help it manage and document ESG-related initiatives.
“Mostly because of the pandemic, many boards have had to learn how to meet and conduct business remotely,” O’Reilly explains. “Keeping one another healthy was the main goal, but a worthwhile byproduct has been using less fuel, paper and other consumables related to gathering in office spaces.”
O’Reilly also points to a feature that allows boards to share and store related links and news, such as media coverage of a credit union’s charitable and volunteer activities. Doing so puts a record of the CU’s ESG accomplishments at the board’s fingertips.
Idea No. 2: Seek Socially Aware Partners
Credit union board members need to educate themselves about how to set a vision for ESG that will help ESG efforts yield practical results at the member level. One way to do this is to study the work of industry vendors already active with ESG, learn from them and partner with them.
As one example, consider what’s been done by CUESolutions provider CUNA Mutual Group, Madison, Wisconsin, in the “social” area of ESG.
“We created the Multicultural Center of Expertise at CUNA Mutual Group to help the organization and credit unions gain a deeper understanding of multicultural consumers, identify business opportunities, develop action plans and execute those plans to serve more people,” says Opal Tomashevska, director of the center. Through the center, “we hope to provide continuing insight and research to shape more and better services to diverse credit union members.”
In addition to working on understanding multicultural customers, CUNA Mutual Group also has done a deep dive into how partnering with financial technology companies can help credit unions add diversity to their vendor pool, connect with companies that will help them deliver on social justice ideas, plus reach and serve more members.
“Through the launch of our Discovery Fund, we believe we can build a more diverse portfolio of companies to support now and invest in further as they grow,” says Elizabeth McCluskey, director of CMFG Ventures Discovery Fund. “The fund, which was just launched, invests in early-stage companies with diverse founding teams targeting the financial technology industry. We’re investing in companies like Home Lending Pal, an artificial intelligence-powered mortgage advisor and blockchain-based marketplace built to address mortgage inefficiencies and biases. We believe there’s a great opportunity to get these young companies in front of credit unions and credit union customers.”
Notably, homeownership is still a primary generation-to-generation wealth builder for U.S. families, and the gap between white and non-white households remains large, according to this blog from the Urban Institute.
CUNA Mutual Group also partners with MGIC on private mortgage insurance, working to help more consumers achieve home ownership.
Idea No. 3: Start at the Top
While the Securities and Exchange Commission doesn’t directly regulate credit unions, reflections from a June 2021 speech by SEC Commissioner Allison Herren Lee does point to the idea that credit union board members can make a big impact on ESG.
“Our economy is built on, and responds directly to, financial incentives,” Lee said in her speech. “Executive compensation is thus a powerful tool for achieving strategic company goals. This dynamic is not limited to simply linking executive compensation to certain corporate financial goals. In fact, compensation works for any number of more specific goals or targets a company may set.
“In addition to helping achieve strategic goals related to issues such as reduced carbon emissions or increased diversity of the workforce, tying executive compensation to ESG metrics can offer an important way to deliver on a company’s commitment to issues that matter to investors and consumers,” she noted.
Executive benefits expert Rich Brock applies this idea about executive compensation having the potential to have a ripple effect in other business areas to the credit union industry specifically.
“As trusted institutions, credit unions are in a unique position to influence change in their communities,” says Brock, national practice leader for CUES Supplier member Gallagher, Charlotte, North Carolina. “It starts at the top. Your executive team is a reflection of the credit union’s values. To ensure these values remain front and center, boards can use executive benefits to align executive performance with strategic goals, to recruit executives who embody their values and to retain executives who’ve demonstrated a commitment to those values.”
Continuous Improvement
Credit unions as a group are well-versed in taking environmentally sound, social justice-oriented actions. And they strive to have the kind of modern governance that will continue taking them forward to future success. In other words, they have a good head start on ESG compared to many other businesses, perhaps even some of their competitors.
Still, as members and communities-at-large make more financial decisions—including where they want to do business or go to work—based on ESG issues, board members can’t rest on their organizations’ laurels. Rather, they need to continue to be visionary and bold in their pursuit of stronger credit unions and a better world. cues icon
Lisa Hochgraf is senior editor for CUES.
