ESG: The good, the bad and the ugly.

If you are depending on external investments to have your business flourish, you have certainty heard about ESG – Environmental, Social and Governance. When you look for a definition of ESG, you will find many that explains what is all about, and I like this one:

Environmental, social, and corporate governance?(ESG) is an approach to evaluating the extent to which a corporation works on behalf of social goals that go beyond the role of a corporation to maximize profits on behalf of the corporation's shareholders. Typically, the social goals advocated within an ESG perspective include working to achieve a certain set of environmental goals, as well as a set of goals having to do with supporting certain social movements, and a third set of goals having to do with whether the corporation is governed in a way that is consistent with the goals of the?Diversity, equity, and inclusion?movement (Wikipedia)

Interesting to see also the 2022 Edelman Trust Barometer, called this year the Cycle of Distrust, highlighting how we as society are losing trust on Governments, NGOs, Media, and Business. In times of lack of working force driven by “The great resignation and great CEO resignation”, the Ukraine invasion and the reality of climate change, the report calls for the time of Societal Leadership.

In the report, 88% of institutional investor are scrutinising information about ESG to make sure their investments are safe. Information Quality is pointed as the main priority in all sectors to restore trust and 81% expect their CEO and leaders to have an active voice on political and social issues.

There is no doubt of the importance of ESG and I am a fierce advocate for any company to lift up their sustainability approach.

Is ESG Selfish?

Most of the investors feel a duty to ethical and responsible investments and select green investments as a safe place to put their money. When a conviction is present in the investor for the climate change for example, it can be seen as a real reason to persuade such fonds. And we should not be naive to believe that is the most important reason to invest. Investor have by their DNA the intention to look for the most robust stocks that offer the best returns and we should not be fooled by the “green” wave.

I remember when the ISO 9001 wave starts. As it was deemed THE standard to assure Quality, many companies rushed to have their processes and quality management systems certificate, so they can hang on the wall a piece of paper telling they fulfil the standard requirements. And I can tell you how many companies, I personally visit and audited that doesn’t deserved to own it. Quality is not about the audit day or a certificate, where everything should be seemed perfect, it’s about a mindset believing that is made for a greater good.

And so is ESG and Sustainability. If your company is doing for the only purpose to access privileged capital, later or soon, you will face a reality that can be catastrophically. Your people will perceive that the truth is something different and will distrust your company. The same judgment will be happening in other parts of society.

Is ESG the new Corporate Social Responsibility program?

I would like to say YES and NO. The CSR program is an internal, self regulated decision to do a greater good beyond focusing on profitability alone, where ESG is a set of standards to have access to privileged capital.?

You have to ask yourself, if your CSR efforts are not working as expected for years, why do you believe your ESG efforts will succeed? Be honest and intentional if you really want to drive a change in direction sustainability. ?

CSR programs entails four major responsibilities:

1. The economic responsibility: making financial decisions that prioritise doing good, not just making more money.
2. The Ethical and Legal Responsibility: Means ensuring a business engages in fair business practices across the board—including treating all employees, stakeholders, and customers ethically and with respect.
3. Environmental Responsibility: Business takes ownership over its impact on the environment.
4. Philanthropic Responsibility: it’s expected for businesses to give back to the communities they exist in and donate to causes that align with their company mission.

Corporate social responsibility is?the concept that a business has a responsibility to do good. By doing that your mission is to have social profit and your moral value your social responsibility.

The good, the bad and the ugly

ESG will bring transparency, not only for the good things, but also for the bad and ugly things your company does. It requires that leaders are prepared for accepting that harm will be higher than good in some cases and they are willing to change that.

Don’t make ESG a report exercise. I'm scared when you look for job positions called: Head of ESG Report. It’s a company wild transformation program in the disciplines of Leadership, Operational Excellence, People relationships and Data governance driven by Project Management and Innovation. It sounds complex and it is. Don't underestimate it.

Just look to your teams and check, where do you find conflict today? Which silos are not collaborating when they not achieve their KPIs? Imagine know that ugly part when you discover that one department is creating more Green House Gas (GHG) emissions than the other. Are your managers prepared to take a constructive dialogue to solve the problem or to finger point the reasons for business to fail?

The European commission is defining a set of standards as part of the Sustainable Finance Action Plan that will hit your company in the next years. And if you fulfil at least two of those criteria's below, you have to start adopting the EU Corporate Sustainability Report Directive now:

1. €40 million in net turnover;
2. €20 million on the balance sheet;
3. 250 or more employees.?

Make sure you have a person driving your Sustainability agenda which is free of judgement, can navigate in all levels of the organisation, diagonally, don’t play the politics (leave it to department heads), and use data as argument to make better decisions. Create a psychological safety environment to tackle the ugly and the bad. Accept that are gaps to be aware and solved on the years to come. It doesn't need to be all in today. And make sure that your communication outside is fair. It is better to recognise your gaps and inform what are you doing to solve them, before it is discovered by someone.

In my next article I will write about the role of leadership to drive the Sustainability Agenda together with the role of the Chief Purpose Officer. If you can’t wait to hold the discussion, drop me a message and I will passionately discuss that with you.

In 2000, the UN General Secretary Kofi Annan launch the UN Global Compact initiative, considered the birth of ESG. And I like to finish with his quote.

Our biggest challenge in this new century is to take an idea that seems abstract – sustainable development – and turn it into a reality for all the world’s people” By Kofi Annan

All the best in your sustainability journey.

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