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Published in Economic Development

ESG reporting becomes mainstream as companies seek investors, talent

BY Sunday, April 10, 2022 06:49pm

SpartanNash Co. last month released its first Environmental, Social and Governance (ESG) report to track its corporate responsibility efforts, the start of what CEO Tony Sarsam called a “transformational journey” for the Byron Center-based grocery retailer and food distributor.

SpartanNash is far from alone on this journey as ESG strategization and reporting becomes a growing trend among businesses and investors.

From the left: Adrienne Chance, Jim Justice,Jack Kolodny

Business executives are finding many benefits of leaning into ESG, while investors are weighing these considerations far more now when deciding where to put their money.

“Corporate and social responsibility is a concept that has been a part of our company DNA for many years, but now there is this global interest in asking: ‘What does that mean for each company and industry?’” said Adrienne Chance, senior vice president of communications for SpartanNash.

“This ESG movement offers a new shared language around it for companies and new frameworks and standards for measuring progress,” Chance added. “The work that we’ve been doing is continuing, but we have this new focus on how we measure it and how we disclose it and what are the goals we’re working toward that are material to our key stakeholders.”

Lacking a universal set of reporting standards, ESG reporting is still a bit nebulous. In SpartanNash’s recent 58-page report, the company adopted standards set forth by the Sustainability Accounting Standards Board (SASB) and United Nations Sustainable Development Goals, which are emerging as the more popular frameworks. 

In the report, the company detailed its goals and progress in areas that range from addressing hunger, responsibility and sustainability in its supply chain and emission reductions, where SpartanNash strives to eliminate 10 percent of fleet mileage and reduce greenhouse gas emissions by nearly 10,000 metric tons in 2022.

The company worked with third-party consultants to create the report, which was overseen by SpartanNash’s executive leadership team and its board of directors. A report of this nature also is proving to carry a lot of weight with investors.

“I think it definitely goes beyond the investors,” Chance said. “Even the people we want to attract to our company to work for us, they want to feel like they’re working for a good company that they’re proud of the work they’re doing.”

“We’re starting to see (consumers) make more conscious buying decisions and support local brands or small businesses that are diverse and things like that,” Chance added. “I think it’s something that matters in many different ways across our stakeholders. It’s great because what’s good for the business tends to be good for ESG, and vice-versa.”

New focus on ESG

While perhaps much more of a buzzword now, ESG has been in focus for years at Jack Kolodny’s private equity firm. Kolodny serves as managing partner at Grand Rapids-based Auxo Investment Partners, which maintains a manufacturing- and industrial-heavy portfolio that focuses on smaller family-owned businesses.

Auxo Investment Partners weaves ESG considerations into its investment strategy, with people being one of the primary focal points. Kolodny said establishing diversity, equity and inclusion in a company’s workforce leads to strong talent attraction and retention, which was a competitive benefit five years ago and has become even more crucial now in the post-pandemic era of chronic workforce shortages.

“While (ESG) isn’t new, it really has become more prevalent in the market,” Kolodny said. “When we think about exiting our businesses, for example, to go to larger funds, we know that those larger funds are very focused on the ESG topic because it’s being driven by their investor base. It’s something we’ve thought about for a long time and tried to prepare for.”

One challenge that Kolodny and his team have taken on is finding a way to translate a qualitative concept — like diversity in a workforce — and make it more quantitative. 

“How do you measure that in a numerical way other than just asking whether people are happy?” Kolodny said. “One of the things we’ve been trying to get ahead of the ball is to create the tools that take qualitative concepts that are important and try to make them more quantitative in nature.”

While Auxo places an emphasis on ESG, if a potential acquisition target doesn’t have a strong platform, that’s not necessarily a dealbreaker. Kolodny said that Auxo’s operational focus allows it to develop those aspects of a business, just as it might develop a sales team or lean manufacturing process.

“For us, developing ESG is a little of that same concept,” Kolodny said. “If they don’t have a strong ESG presence, it is our belief that we can develop those aspects of the company that ultimately develops into a platform.” 

Data, not hype

Recording and tracking ESG and general corporate responsibility efforts also applies beyond publicly traded companies trying to lure investors. Privately held companies have been embarking on similar efforts, motivated by other factors and reaping benefits along the way.

Kalamazoo-based Kalsec Inc. — a Certified B Corp that produces natural spices, advanced hop products and herb flavor extracts, colors and antioxidants — has long tracked corporate responsibility metrics such as water and energy usage and greenhouse gas emissions. But it wasn’t until 2015 when it started to formalize the reporting on it.

In an effort to produce information that could be quantitatively compared to industry standards and other companies, Kalsec used Global Reporting Initiative (GRI) standards for reporting.

“We’re privately held, we’re not trying to fit those models of how we can attract funds into our organization, but we do have a family that owns our company and we have the stockholders, which are the family, and they care about the same type of information like how are we performing against these social standards and environmental standards,” said Jim Justice, Kalsec’s senior vice president of corporate responsibility and resource management.

In terms of investment in the ESG side of its business, Justice said Kalsec is especially focused on greenhouse gas emissions. He said the company has increased investments to generate baseline and workable data, and that larger-scale investments are on the horizon.

As a B2B company that supplies food and beverage makers, Justice said Kalsec also has had active discussions with its larger clients on ways to more effectively cater to a customer base that is more conscious of sustainability and where their food is sourced.

Leaning into ESG also has additional benefits, such as talent attraction and retention.

“We’ve very much seen the benefits of attracting and retaining employees,” Justice said. “It’s important for people to know that there is a purpose-driven reason for why companies exist and what they’re focusing on.

“People know that telling your story in a way that’s audible and transparent means something different than splash words, and we try to do that everywhere we can.” 

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