By RICK BRUNDRETT
In a letter last year to Cromer Food Services, one of the Anderson-based company’s hundreds of customers – a foreign-headquartered corporation – said it was drafting a “Business Partner Code of Conduct that expresses all our essential requirements for sustainable cooperation.”
The letter asked the company to complete a questionnaire as “one of the methods of ensuring compliance with the standards” – which included broad categories of “social responsibility” and “environmental protection and resource conservation.”
“We have started to get feelers – nothing required as of yet – questionnaires sent to us from companies asking us what our demographics are, what our environmental impact is, what we are doing to lower our environmental impact – all the things you find in an ESG score,” Cromer president Brent Cromer said in a recent interview with The Nerve.
“ESG” stands for “environmental, social and governance,” though there’s no single accepted national standard for determining ESG scores.
Critics contend the scoring is being used by banks, investment and accounting firms, and credit rating agencies to grade companies on how well they have adopted certain liberal values or policies, such as reducing the effects of climate change, increasing diversity on their governing boards, and supporting social justice causes.
Cromer Food Services has 115 employees and around 500 customers, providing a variety of food and vending services to companies ranging in size from 100 to 10,000 employees, according to Cromer and the company’s website.
There were 445,804 small businesses in South Carolina last year, representing 99.4% of businesses in the state, according to the U.S. Small Business Administration.
Diane Hardy, who owns an Upstate bakery with 38 employees and founded a grassroots organization, called the Mom and Pop Alliance of South Carolina, to educate and advocate for small businesses statewide, worries that the ESG movement will hurt small businesses and residents.
“It’s something that has not been transparent to the citizenry,” Hardy told The Nerve. “It’s been around for two decades, but it’s purposely been hidden. People are not aware of this, and it could easily be turned into a social credit score on individuals, yet we know very little about ESGs.”
If compliance with ESG standards becomes a requirement for South Carolina companies, Hardy said the “amount of red tape and paperwork to attempt to do it for ESG clients could be catastrophic to a small business, not to mention invasive from a privacy standpoint.”
Cromer said small businesses such as his ultimately could be forced to hire compliance officers to deal with ESG mandates.
Hiring an ESG compliance consultant likely would cost at least $25,000, according to a business source who spoke this week to The Nerve on the condition of anonymity, noting the cost information was provided by a representative of a prominent ESG rating company.
The ESG movement, also referred to as “stakeholder capitalism” or “sustainable investment,” has been gaining momentum in recent years in the U.S. and abroad. A 2020 survey by accounting giant KPMG, for example, found that 82% of large U.S. corporations include “sustainability information” in their annual reports.
Fitch Ratings – one of the three main credit rating agencies – in a report last year noted it maintains more than 140,000 individual ESG scores for 10,000-plus “entities and transactions worldwide.”
The Nerve last month reported about two S.C. bills, of which was aimed at improving transparency of ESG scores in financial transactions, while the other would prevent discriminatory practices by financial institutions based on ESG ratings.
‘Writing on the wall’
Cromer provided The Nerve with copies of ESG-related inquiries sent to his company by two corporate customers, which he asked The Nerve not to identify. One of the customers provided a survey asking, among other things, for the “Ethnicity of primary business owner” and “Type of diversity certification(s) obtained.”
Cromer said his firm hasn’t responded to any of the surveys.
“We have refused to do that simply because we think it’s intrusive,” he said. “Also, we see the writing on the wall that eventually this is going to be a requirement for doing business with those companies, and we’re just not going to participate.”
Cromer added the ESG message was no secret to the business community when he attended last month’s nationally televised Heritage golf tournament on Hilton Head Island. He provided The Nerve with a copy of an event guide advertisement for the Royal Bank of Canada (RBC), the tournament’s general sponsor, promoting the bank’s ESG “integration in our investment process.”
Asked about ESG diversity goals, Cromer told The Nerve while he believes in diversity in the workplace, “If I get a certain diversity based on the best employees, that’s great, but I don’t want to be forced to take a lesser employee if they’re not qualified.”
As for adopting environmental priorities that would be included in an ESG rating, Cromer replied, “We’re all for doing the best for the environment, but costs have to be weighed.”
When it comes to his business, Cromer said he doesn’t care about his customers’ political views.
“I treat them all equally,” he said. “They all make purchases from me, and they’re all valued the same,” adding, “It’s a two-way street: If you deliver the service that’s expected of you and you do the job you’re supposed to do, that’s all that should be looked at.”
Hardy said she first heard about ESG two years ago.
“I knew it would impact large corporations, but I didn’t think it would impact smaller businesses,” she said. “Then I started seeing that it really would impact small businesses, and so we needed to educate the legislators and citizens about this critical topic.”
She acknowledged, though, the general public doesn’t know much about it.
“I speak to groups – 125 people – and I’ll ask the room how many are familiar with this topic, and maybe I’ll have one person who’s heard of it and knows about it,” she said.
Hardy said her Greenville-based Mom and Pop Alliance persuaded state Rep. Anne Thayer, R-Anderson, to introduce a bill in February that would prohibit financial institutions doing business in the state from discriminatory practices based on ESG ratings or other “subjective or arbitrary standards.” The bill garnered 30 co-sponsors “within weeks,” she noted.
She said her organization also had input on another state bill introduced in March and co-sponsored by Sens. Josh Kimbrell, R-Spartanburg, and Sean Bennett, R-Dorchester, which would require financial institutions to disclose if they use ESG scores or “diversity, equity, and inclusion practices” when doing business in the state.
Both bills, which were highlighted in last month’s Nerve story, didn’t pass during this year’s regular legislative session but can be reintroduced next year.
“I want to give the Legislature credit for moving on it,” Hardy said.
For individual South Carolinians, Hardy said she fears those with bad ESG scores will be “treated as second-class citizens when it comes to financial services and insurance,” adding those companies also are “being graded, not on just their behavior, but also on the customers they take on.”
In the end, Hardy said, “We need to do everything we can legislatively and through education to block the discrimination from ESGs that’s happening in South Carolina.”
Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394–8273 or firstname.lastname@example.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.
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