Just as importantly, a private company that clearly communicates its commitment to ESG sends a strong signal to the market that it has a capable, forward-thinking leadership team that can drive post-IPO success.
What ESG means for private companies
ESG encompasses a wide range of initiatives and strategies that correlate with long-term value for all stakeholders. The best way to consider ESG and its relationship to your company is to look beyond financial performance to the broader implications of your business — the people, places and processes that impact, or are impacted by, your organization.
For private companies preparing to go public, ESG typically means focusing on strategies around four key elements:
- Environmental performance and sustainability of operations and products
- Ethical sourcing and responsible supply chain management
- Workforce and supplier diversity and inclusion
- Governance leading practices, including proper board structure and representation
While many companies include philanthropic efforts, such as community donations or support for local charities, in their ESG reporting, those activities alone aren’t enough to convey how the company intends to create long-term value for all stakeholders. Today, community giving by itself is typically considered a regular component of doing business and not a strategic ESG element.
Common obstacles for private firms
Private firms preparing for an IPO face several challenges in creating a thorough, strategic ESG platform.
First, many entrepreneurs and private business leaders have a laser-like focus on financial growth and performance, and rightfully so. That’s how they successfully positioned their firms for an IPO. However, that focus means that they are sometimes caught off guard by the evolution of ESG and its importance to the financial community, investors and the marketplace.
While it’s true that most private firms have shareholders, investors and relationships with lenders, they have not yet been subject to the same level of scrutiny as public companies, making it easier to minimize ESG as a priority.
In addition, many private firms lack a deep bench of talent with experience in ESG strategy development at publicly held companies. And it’s not uncommon for private companies to silo ESG into a particular department or view it simply as another risk management effort. Without being embedded into the company’s strategic framework, ESG won’t deliver fully on its promise.
Finally, it’s necessary for private company leaders to fully understand and appreciate public company reporting requirements and develop the appropriate processes and controls to maintain compliance. Historically, those requirements have been focused on financial performance, but regulators are increasingly requiring ESG-type reporting — a trend that we expect to accelerate globally. It’s vital that private companies prepare for this as they look to go public — and continue to monitor developments closely.
The ESG journey for private companies
In my experience, companies that are coming to market today are spending more time and resources on pre-IPO readiness than ever before, and smart companies are including ESG strategy development in that preparation. But, given limited resources and time, what’s the best way to move forward?
Focusing on these five priorities can help private company leadership teams ensure that ESG principles are embedded into their post-IPO strategy: