Credit unions do not have a specific reporting requirement around ESG. Some states, however, like California and New York, are increasingly requesting information from credit unions on certain ESG issues, especially those associated with environmental sustainability. While U.S. federal and state regulations do not currently require ESG reporting for public companies or credit unions, for-profit investors are seeking more information around ESG from both private and publicly-traded companies. Investors understand that sound performance on ESG-related measures translates into better financial returns, as studies published by the Harvard Business Review and others have attested.

There is also some momentum building for the U.S. to follow the lead of the European Union in having additional ESG information incorporated into SEC reporting requirements beyond the current SEC obligation for disclosure of material risks. If the SEC follows through, federal and state credit union regulators will assuredly not be far behind, and it is better for credit unions to be prepared and possibly help to form any future regulations.

Even so, credit unions are positioned to do well under ESG scrutiny, if, or probably when, regulatory reporting of ESG measurement arrives. ESG factors correspond to values that are a way of life for credit unions. Despite the absence of reporting requirements, credit union senior management and their boards can lead the way. Prioritizing members, communities, employees and other stakeholders underscores the way credit unions do business. You know that credit unions are leading the way, when 62% of the public company directors that PwC recently surveyed agreed that companies should prioritize a broader group of stakeholders, beyond just shareholders. Likewise, the same PwC report shared how 55% of public company directors knew that ESG issues needed to be part of their enterprise risk management conversations. Credit unions are well-versed in ERM-related ESG with their attention to privacy, data security, emphasis on trust related to their financial products, and organizational integrity.

An organization's purpose describes the reason it is in business, and its values define how it does business. Companies that embed ESG into their overall strategy, risk management and operations are better able to present the story on why and how they bring value. ESG then becomes part of the narrative around the brand that makes people want to do business with the organization. Alignment of purpose, action and strategy with messaging enables stakeholders to know how the organization will provide them long-term sustainable value. In effect, a credit union can shape the brand narrative through member-attuned and socially/societally conscious practices.

ESG-related strategies support, and are not at odds with, the rigorous financial demands of the business. Senior management can create and implement ESG-related strategies that provide market opportunities when incorporated into the credit union's brand, such as the commitment to financial integrity and privacy for its products and services. It can serve to advance considerations on addressing material enterprise risk. Cybersecurity, maintaining a good reputation and sustainable operations come to mind as managers identify robust processes, controls, and governance procedures for successful operations and risk mitigation.

ESG qualities that represent your credit union's values will also resonate with your members. Human capital development will resonate with your employees and build a healthy culture, while securing your talent pool and improving employee skillsets. Financial integrity is of utmost importance to members, as it builds their loyalty and trust. Sustainability will be valued by employees, members and the community, building your reputation. The alignment of purpose and values creates an honest, transparent story that will make these and other stakeholders want to engage with the credit union.

Smart managers are always focused on human capital and attracting, developing and maintaining talent – and for them, ESG factors strongly come into play. The largest segment of the current workforce is millennials. Moreover, they and Gen Z, the generation following them, will form about 75% of the workforce over the next 10 years. They bring their values to work, use them in choosing their employer, prefer brands that are socially conscious and make investment decisions that are more ESG dependent. ESG issues like employee development, diversity and inclusion, ethics, and very significantly, the environment, especially as it relates to the global warming crisis, resonate strongly with them. When your employees and recruiting prospects see that these are serious issues for your organization, your brand is burnished and you are more likely to attract human talent and new members from this growing and influential demographic as well.

Additionally, the governance aspect of ESG directly impacts the way the board and its committees do business. Again, ESG will support, not hinder, a highly functioning board. For example, the board's regular review of company strategy can assure the incorporation of ESG-related issues that are aligned with the credit union's purpose and values. Board oversight makes sure the plan is appropriate and will deliver results. In considering qualities for board membership, seeking diversity of thought and background can advance a higher level of engagement and effectiveness, and a valuable viewpoint. Furthermore, board attention to governance aligns executive pay with strategy and purpose, and business ethics and transparency are essential to the brand. All contribute to a highly-functioning board.

Environmental, social and governance factors fit well with a credit union's purpose and values when incorporated intelligently into planning and operations. ESG factors are appropriate, meaningful dashboard measures for senior management and the board. ESG can broaden thinking, burnish your brand, serve to attract and maintain talent and members, enhance board function, and help you better serve your members and stakeholders. For all of these reasons, taking ESG into account is critical and will drive results.

Stuart Levine

Stuart R. Levine Chairman and CEO Stuart Levine & Associates LLC Miami Beach, Fla.