ESG, short for environmental, social, governance, has become front and center in corporate strategy. Most major companies, particularly the publicly traded corporations who have to respond to growing pressure from institutional investors, either have or are developing ESG plans.
But while there is an emerging ESG movement, there are enormous challenges in measuring and meeting the goals, primarily because of a lack of data. There are hundreds of organizations, associations, academic institutions and private companies that are working to create ESG standards in their respective industries, and all are facing data deficits. As such, ESG reports from leading corporations are often not complete and not standardized, but they are a step forward.
One of the issues to watch in future ESG deployments is how they will impact companies that provide products and services to the larger corporations. Corporate ESG policies may require the company to evaluate ESG policies held by its suppliers or vendors. This means that even if you run a smaller, private company, you may be required to adopt standardized ESG rules to comply with your clients’ obligations.
This is key for the IT asset disposition sector, because ITAD involves activities that have the potential to create exposure for a corporate client on the environment and data security fronts. Indeed, where else in IT asset management are there greater compliance requirements than in ITAD? At Compliance Standards we predict ITAD companies will be under growing scrutiny and will be pressured to upgrade their own ESG practices if they want to remain relevant going forward.
The ITAD industry’s current ESG posture
So is the ITAD sector ready for ESG? Clearly, many ITAD-related companies are already releasing reports to disclose their corporate social responsibility positions. The big companies like Dell, HP and IBM already have such reports, even if they often outsource the ITAD function to third-party professionals. There are also smaller firms like TES, Blancco and others who release important data linked to their ESG or corporate social responsibility commitments.
Although the format in which these reports are released is not standardized, they give some minimum assurance to clients that the service provider is serious about improving ESG reporting capabilities and structures. It will take a while before we see standardized reporting that could feed into clients’ own ESG reporting platforms, but there is progress that is likely to accelerate as new standards are accepted and rolled out.
As stated above, one of the main issues facing organizations looking to standardize ESG is a lack of comprehensive data. This is certainly the case in ITAD, an industry that is dominated by many private companies, often family-owned and often not so willing to disclose data on operations. ESG could eventually force a change there, but again, this will take time to achieve.
Without consistent data, we as analysts have to rely on publicly available information to form an opinion on company readiness for ESG compliance. Data coming from customers and employees, for example, can help industry analysts create a composite profile and find strong indicators of a company’s management performance. In the case of ITAD, Compliance Standards’ Vendor Reputation ratings and assessments from employees can accurately depict the health of a company and, by extension, the health of an entire industry.
Focusing in on the ‘social’ of ESG
Compliance Standards’ research indicates that collectively and on average, ITAD companies are generally not too far from America’s largest corporations when it comes to the treatment of employees, a major component of the social portion of ESG.
According to a Compliance Standards’ tally of open-source data related to publicly traded companies, the top 20 S&P 500 companies collectively received 3.77 stars out of 5 stars by employees. A 3.77-star rating is just about average. Still, 11 out of 20 companies scored 4 stars or higher.
The equivalent in ITAD, as represented by 29 ITAD companies tracked by Compliance Standards using reviews collected from employment and job listing agencies like Glassdoor and Indeed, is 3.32 out of 5 stars. It’s a lower rating but not far from the S&P group. This means ITAD companies are collectively not too far behind their S&P peers, and some worthwhile efforts by each ITAD company could help boost their individual employee sentiment. However, in the group of 29 ITAD companies, only four scored 4 stars or more, hence the need to make measurable improvements in human resources policies.
Although the average score is the same, by one measurement the groups are quite different: the spread from the lowest rating to the highest. In the ITAD group, the lowest-rated vendor received a disappointing 1.45 stars versus the highest-rated at 4.15 stars. The difference between the best and the worst is a 2.7-star gap. But in the S&P group, there isn’t a wide gap between best, at 4.4 stars, and worst, at 3.5 stars, suggesting mature public companies have similar profiles in the way they treat their employees, following similar HR policies.
Compliance Standards’ tallies indicate that a lack of career opportunities is the biggest problem, with employees reporting an average of 2.98 stars for the collective group of ITAD companies, the lowest of the six analyzed attributes.
Such a situation is not surprising. Most ITAD employees tend to be workers involved in the handling and treatment of IT hardware, from the physical movement of assets, their diagnostics and disassembly to recycling, with tasks that are repetitive and often tedious. In this environment, it is indeed difficult for ITAD company executives to chart a path for career development.
This is the same situation we also see with some S&P companies that have labor-intensive operations, including Amazon, Home Depot and Costco. While this is not an easily solved problem, companies should have tools in their HR toolkit to offer a path for growth for their employees. Some creative ideas can be used to bring career development offerings at a minimal cost to the company.
Naturally, compensation and benefits also scored low at 3.15 stars. This is not a surprise, as we believe this factor will likely remain a permanent issue for a long time in an industry where margins are very low. In contrast, the best rated factor is diversity and inclusion at an aggregate score of 3.37. While this is the higher-rated feature, there is still a great deal of improvement to be made by ITAD companies as they prepare for ESG accountability.
The data from Compliance Standards reveals mixed results on where the ITAD industry stands in terms of ESG metrics. Although employee sentiment may be slightly lower among ITAD firms than the S&P group, diversity in leadership provides better news for ITAD.
In our S&P sample of top-20 companies, there is no female CEO. In general, only 8% of the companies in the entire S&P-500 list have female CEOs. Globally, analysts calculate that female CEOs account for just 5.4%.
But in our list of 29 ITAD companies, that figure is 17.2%. We note the following companies offering ITAD services as being led by women: SHI led by Thai Lee, Insight led by Joyce Mullen, Merrimak led by Mary Kariotis, CDW led by Christine Leahy and HOBI International led by Cathy Hill.
These senior leaders may be distant from the ITAD operations within their company, but they are still accountable for the performance and direction of their ITAD units.
Adapting to ESG will become vital
This analysis looks at just one component of the ESG equation as an example of how we can assess the ITAD industry’s standing based on publicly available data. This will become more important as companies face greater pressure to meet ESG goals.
The ITAD industry has long been a small player in the tech industry, often considered an orphaned function in the world of enterprise IT. But the asset disposition sector is set to expand considerably and become a key player in the years to come. Consolidation is inevitable, as weak ITAD companies that have no resources to adjust will either cease operations or will be acquired by more stable companies, a trend that will likely play out for years.
ITAD companies looking to remain competitive will need to respond appropriately to industry evolutions, including the ESG movement, which appears to have more sustaining power than what used to be called corporate social responsibility or Green IT concepts.
David Daoud is a principal analyst at Compliance Standards, a research and consulting firm that works with the ITAD industry. He can be reached at [email protected].
