Everywhere you look there is a growing need to address a wide range of environmental, social and governance issues. But a number of players critical to moving from high ESG commitments to real impact to meet that need are often overlooked: private companies.
Indeed, given their size, reach and place in our economies, private companies are in a unique position to drive the mass adoption of meaningful ESG standards and practices, in a way that creates significant business opportunities. Almost all of the 27 million businesses in the United States are privately owned and make up more than 40% of the US economy. In 2020, a key sub-sector of private companies operating in the private equity ecosystem comprised $4.5 trillion in assets under management, a number that has only continued to grow. In the United States, more capital has been raised in private markets than in public markets every year since 2009.
When it comes to ESG implementation, the importance of private companies goes beyond their scale. This is especially true because private companies have a much less crowded path to measurable ESG effects than their publicly traded counterparts. Private companies are more flexible from a governance perspective. You are less constrained by the quarterly search for financial returns. Although many operate on a large scale, most are also more efficient from an operational perspective.
Private companies of all sizes also hold the key to ESG implementation for large public companies that get so much attention from regulators and activists. There are myriad private companies that form supply chains that hold the key to meaningful ESG implementation for our key economic actors.
As CEO of Diligent, I am privileged to regularly engage with business leaders, investors and regulators around the world on pressing governance and regulatory issues. From my point of view, both the immense ESG potential of private companies and the roadmap for a pioneering role are unmistakable.
There is no area where the promise of private companies as catalysts for ESG adoption is truer than the “E” in ESG. As signs of the climate crisis mount, so does the need for all businesses to change their environmental impact and become more sustainable today. That means acting on three fronts – leadership, measurement and cultural change – to turn transformative ESG commitments into concrete impact.
Action requires expert-led leadership. For more and more companies in the US, that means appointing a Chief Sustainability Officer (CSO), but that's not the only formula. For example, in UK corporate governance, CEOs formally assume CSO responsibility. Throughout this year, I will embed a sustainability perspective into my work and ensure it is a priority at all levels of our organization. To ensure the approach is expert-led, I will be working closely with a new team member who has been specifically hired to drive ESG action across our business. In short: the development of sustainable companies requires a competent contact person.
Last year, hundreds of companies, including mine, signed up to the Net Zero Carbon by 2040 commitment ahead of the United Nations climate summit in Glasgow. The essential first step in meeting this commitment is to accurately measure current greenhouse gas emissions. Unless companies make it, it will be impossible to get to zero. That's why in 2022 our company will leverage our proprietary ESG offering, Diligent ESG, to measure the full extent of our carbon footprint and begin implementing opportunities to reduce it.
The role and opportunity for private companies is particularly important when it comes to these net zero commitments and the measurement behind them. Larger companies that have made these commitments will only be able to deliver if their suppliers and vendors respond to the call in a similar manner. As large public companies adjust their practices, they need to turn to vendors who can accurately measure and report their carbon emissions as well as other non-financial ESG metrics like never before.
