ESG is NOT Sustainability - Ironically ESG needs to Regenerate!

(8 mins read)

The term ESG has a muddy past. Used so interchangeably, I went full circle in giving it leeway to now understanding how frequently it causes great harm. It is so mixed up with Sustainability, CSR, Purpose and Impact that it is something everybody knows but not many truly understand.

ESG is NOT sustainability. It does however have many paradoxes.

“Environmental”, “Social”, “Governance”, what’s not to like about that?

Not many realise ESG was born from the risk and investment industry, and not the sustainability movement.?Coined in 2004 ?by Paul Clements-Hunt head UNEP FI, alongside early work with James Gifford’s?Principles of Responsible Investment . Despite intentions to direct financial capital towards social good it quickly morphed into assessment frameworks with the goal to?minimise a company’s exposure to risk. ESG assesses what social, environmental and governance issues pose risk to the company, for the purpose of maximising investor or shareholder profit. Not risks the company could pose out to the world.

“For example, a company could be a significant source of emissions but still get a decent ESG score, if the ratings firm sees the pollutive behavior as being managed well or as non-threatening to the company’s financial value” —?Stanfords Social Innovation Review .

The Corporate Social Responsibility (CSR) movement equally had some benefits in bringing responsible consciousness to the world of business. Philanthropic giveback of time and money (1900's), led to more formal processes (50’s), but ‘responsibility’ did not have a unified measure for impact. It too was unstructured and down to the will, and values (and exploitation) of the user. Against the?Friedman indoctrine of companies purpose being purely for profit , CSR did not have the might to battle the systems change against profit, but may well have laid some groundwork.

The ESG acronym might sound purposefully driven and the frameworks might incrementally lead to some benefit, but it?varies wildly , down largely to the intent behind the users,?high ESG scorers are often the worst sustainability performers . ESG remains ultimately in service of the company, and not any broader definition of sustainability or the planet.

Is there anything more dangerous than a wolf dressed in sheep’s clothing? An unintended econmists trojan horse? A computer scientist might say…

“If it looks like a duck and quacks like a duck but it needs batteries, you probably have the wrong?abstraction “.

Paradoxically, I believe in holding caution in looking back with hindsight on a body of work’s origins. The ESG movement bought ‘responsibility’ into the power structure of finance and commerce, built momentum and gave the privilege to be stating these insights with fresh consciousness today. Perhaps contributing to?the s-curve of change (9 positive shifts) .

However, I have lived through the mass-market destruction of original intentions and principles behind six sigma, lean, agile, product, devops and many other transformative movements as our desire for prescriptive ‘copy and paste’ answers leads to an over focus on the method /framework, and less the outcomes intended. ESG is no different. It’s a process that no longer meets the desired outcome. Worse, we are investing time and intelligence and confusing it with something it is not.

“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge” — Stephen Hawking

Here, modern change management (true business agility) and regenerative movements align beautifully. Both embrace complex adaptive systems recognising the importance of emergence, systems, holistics, agency to stakeholders, and continuous discovery, learning and evolution above prescriptive solutions. More in future?Journey towards Regenerative ?blogs.

So what is Sustainability that ESG is not?

Broadly speaking Sustainability can be defined as:

“The ability to maintain or preserve the viability of a system over time.”

I love this simple definition. It allows us to apply the lens to different system levels, and we learn something important at each stage:

1.?Sustainability of self?(individual) — if we cannot sustain ourselves, we cannot help sustain anything above our self (airplane oxygen mask rule)

2.?Sustainability of inter-relationships?— The only way we can manifest the best of our own potential, is in service to the collective potential

3.?Sustainability of teams?— co-existing to contibute to the purpose and value of the system/organisation we sit within

4.?Sustainability of the ‘business’?— a tension between its surposed ‘purpose’ and its profitability (a few select ‘owners’).

5.?Sustainability of society… GDP alone does not sustain, without other levels of social growth and harmony

6.?Sustainability of our planet?— without it nothing else sustains.

Like a set of nested Russian dolls, each system lives within each other. We learn local (individual) and global (planetary) sustainability are polarities. Two sides of the same coin, Ying and Yang, coexistance and harmony.

Systems thinking teaches us that a system and its purpose can be defined by the context and purpose of the system that it sits within. Try sustaining self without any regard to the environment or society we sit in. Try sustaining a team without regard to the context and purpose of the wider organisation. Try sustaining an organisation without regard to the society/economy it sits in, or our society without regard to the planet and its boundaries. Problem is we have prioritised the sustainability of the business for far too long, even at the expense of:

• Self?— mental health, anxiety, burnout, layoffs, agency, quiet quitting,
• Social fair and just systems?— lack of economic equality, diversity, equity and inclusion,
• Our Planet?— environmental depletion, biodiiversity and pollution.

Each nested system can afford different timescales to be out of sync with the larger system it sits within. An individual cannot get away without contibuting to their team for too long. At a planetary level science tells us we are currently gambling with that timeline —?UN IPCC 2023 ARC Summary . We had a 200–300 year party, and the pop/fiz is about to run dry.

We are?1.0 degrees above pre-industrial temps , 1.5 — 2.0 degree increases have alarming consequences, and?16 tipping elements ?pose further inter-system risks. Two tipping points together represent 10m of sea level rise disruptive to our entire socio-econmoic stability — Like kerplunk, pull too many straws and?all?marbles come crashing down (ref:?The Week ).

Understanding this is not alarmist, it is simply systemic risk management and grasping at our full potential.

Drawing from Sustainability Definitions

A common sustainability definition comes from the?Brundtland Report, 1987 , although it defined ‘sustainable development’ (built on old mental models of ‘growth’).

“Fulfilling the needs of current generations without compromising the needs of future generations, while ensuring a balance between economic growth, environmental care and social wellbeing”.

It’s importance was a shift towards long-term thinking, by eternally placing tomorrow’s generations as stakeholders in today’s decision making. Traditional African wisdom held the same beliefs..

“The planet was not given to us by our parents, but loaned to us by our Children”.

However, where ESG fails by trying to conserve old thinking and blocking regenerative new ideas to grow, sustainability consciousness continuously challenges itself and moves forward learning and evolving...

1. The open question of continuous ‘economic growth’ as an ideal, is that even sustainable? Why growth purely under economic terms?
2. Seeking clarity on the word ‘needs’, calling for a greater focus on the aspects of socially?fair and just, economically?inclusive and equitable, and environmentally?balanced and regenerative’.

And that brings us onto Regenerative…

Another way to look at sustainability (and what ESG is not) is the scientific measurement to answer the question ‘is this sustainable?’. This should lead to a ‘yes’ or ‘no’ answer that requires a mathematical equation. ESG has only subjective tick boxes and scores. A high scoring tobacco or oil/gas company might?have great governance, but still causes great harm to society , is it really sustainable?

To understand we can look at Sustainability in economic terms. A bank balance has capital (cash) that you can earn interest on. If your lifestyle means you keep dipping into your capital and your bank balance goes down at a faster rate than the interest received then the capital becomes depleted, and this behaviour is clearly not sustainable.

Just like a bank balance, the planet has?natural capital? that we also live off. This could be the quantity of trees and forestry, the clean air in our atmosphere, the minerals in the earth, the quantity of fresh water or fish in our seas, or even human capital or the good will of your workforce. Sustainability should come down to this same accountancy challenge. If we keep dipping into and depleting earth’s capital then it too is unsustainable.

How do we reduce or stop this depletion? How do we measure these elements, or calculate the boundaries including everyones fair share? Since ESG 2004, sustainability science has moved on, if we will allow it to grow it might well flourish…

• Stockholm Resilience Centre? — 9 Planetary Boundaries
• Ecological Footprint & Overshoot
• Centre for Sustainable Organisations ?— scientific assessments
• UN SDPI? — Sustainable Development Performance Indicators

Restorative?action is topping up the capital and reducing the reduction back to previous healthier levels — fish stocks having?declined by 90% since 1900 and it is predicted by 2030 there will be a?40% gap between global water supply and demand .

Regenerative?action is adopting policies and systems ?that heal and allow living off the interest, by only taking what is naturally replenishable. It is thinking global, but developing local.

To be regenerative is to re-align with life’s natural planetary patterns. Life has periods of stability, abundance, conservation, collapse and breakdown, and periods of rebirth and regrowth that enable nourishing new shoots to bloom. This is where understanding the change and transformation process, and where creativity, innovation and continuous learning align.

Today’s ESG frameworks drive incremental improvements which do not serve the severity of todays challenges. They are not scientific and are not contextualised. They alone do not change the essence of the business, or their values. We therefore need to better align ourselves back to core regenerative patterns of life, to keep sense checking if yesterday’s patterns, frameworks and solutions are actually today’s or tomorrow’s problems. We need to learn to let go of those that no longer serve us, and to grow new patterns, behaviours and systems that flourish for tomorrow’s needs.

ESG?politic is none of that . It is harmful to continue to try to conserve these old labels, measurement systems and assessment frameworks, and not let them evolve, die-back or allow something new to come back stronger. ESG is also often siloed to a select few in an organisation, and has built a cottage industry. Sustainability is a complex subject and deserves our respect. It requires all our efforts, and all of us to learn, adapt and evolve.

The recent UK FCA?‘Dear CEO’ letter ?clamping down on ESG gaps is also sign of breakdown and the need to evolve.

I beleive in the view it is important to be critical how ESG / sustainability has been misused. Equally we cannot dismiss decades of good people across disciplines, that have used different language/labels but have worked towards sustainability and worked to regenerative principles.

So when I hear sustainability professionals proclaim their decades in the Sustainability industry whilst dismissing others that are new to obtain such titles, I am more interested to question are they themselves ESG, incremental and part of the problem, or have they evolved with the movement towards true sustainability and the pressing poly-crisis needs of our time? As Al Gore states, political will is a renewable resource, so let’s renew it.

We can never stop learning, improving and evolving. It goes against nature.

Look around you, what do you see? Is it a duck or a duck with batteries?

We are a part of nature. Regenerative is within us. Long live the return to millennia old regenerative learning and more sustainable practices!

Paul

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