ESG or Sustainability? Are they the same? Which are we doing?

Now that we have governments all around the world piling on the ESG bandwagon, on top of regional and local regulations, how should we be looking at this new requirement for compliance? Is this taking us closer to true sustainability? How do we need to understand the value of compliance? Is there a reason to be more proactive? Bottom line is that we should probably not wait to see how this may eventually affect our business, or lives.

I recently posed a survey question on Linked In on this subject. "What is your most pressing need on Sustainability planning for your value chain?"

The results are interesting.

1. Learn what is sustainability 13%
2. How to reduce carbon output 38%
3. How can you improve ESG score 50%

While my survey was small, it was still indicative of the state of awareness on this topic. That said, my exchanges with various supply chain leaders and practitioners around the globe seem to indicate there is a gap in understanding what sustainability is about. And this gap seems to extend to C-suite as well. And many firms have a clear marketing budget that includes sustainability content, but does this generally reach back into the supply chain to make a difference? A recent webinar I attended with international leaders had 2 main focus points. #1 where is the priority of Sustainability in corporate strategic planning to actually drive carbon reduction. And #2, how does this fit with cost management? The majority of participants are indicating cost management in general, outside of sustainability, trumps sustainability more often than not, and sustainability generally is not formally addressed in many strategic plans where the firm has allocated people, time and money to drive change.

The next question is what change is needed, or beneficial. Just out, Supply Chain Brain magazine's ESG issue has some great insights to consider. https://bit.ly/3o7N1Sb

I must admit, I am on the fence about ESG, while I fully supply Sustainability. First to define sustainability. People, Planet, Profit, the Triple Bottom Line. If you don't respect people or planet, you will incur larger costs. That is a reality that manifests in every supply chain exhibits symptoms of at along the supply network. The Profit is affected when your supply chain has surprises, from labor practices, safety problems, pay rates, and high turnover. These all have costs. How you factor this in also makes a difference. Least Total Cost thinking applies in every sense. Software solutions will not always resolve productivity problems. Automation may help but doesn't remove all productivity issues. How many customers prefer to walk up to the digital ordering kiosk in McDonalds restaurants? Not 100% or even close. The final analysis takes us to best practices for sustainability that remove risks, remove real costs and drive a more resilient supply chain by design. Being passive about this is driving in the rear-view mirror. Eventually something will bite you. And then there is the compliance aspect. Where industry doesn't do a good job policing itself, governments will. With government involvement comes new costs and often more. The concept of reducing emissions is a healthy position, regardless of what triggers climate change, the need is real. Reducing environmental impact, on just about any level, is a positive plan for everyone.

The subject of ESG is not altogether the same discussion. Now we have monetized our carbon production for a profit. Is this good or positive?

Sustainability has its core focus on carbon reduction, not carbon compensation. ESG has its core focus on carbon compensation. So far, ESG seems to be reporting that you look good, regardless of how much carbon emissions your business generates. This is maybe not exactly the end game for sustainability. That does not mean that we cannot achieve positive outcomes for both, rather it means each firm must take specific steps to prioritize its focus on driving down costs - while implementing ESG compliance.

Interestingly, many large organizations are investing in marketing content to appear friendly to the environment, yet the long-term goal to achieve carbon zero emissions is very elusive. Most of us, as a human race, will at best reach carbon neutral and much of this comes from "buying" carbon credits. This is carbon compensation, not exactly carbon reduction. This is ESG, reporting on how the end-to-end supply chain, or as my friend Michael Ford says, Earth-to-Earth impacts are measured and reported. Cell phones as an example have quite a lot of carbon creation in mining, transporting, transforming, more transporting and then the use of the product drive enormous additional carbon creation. We think we are environmentally friendly spending money to buy carbon credits because that is cheaper than reducing emissions. And often that is true. Another interesting element is to understand what business benefits ESG reporting accomplishes. ESG performance is measured (rewarded) by banks, the people who control money, who gets it, what it can be used for and what opportunities are available to which companies. Firms who have good ESG scores have access to resources not available to others.

Elon Musk had some interesting observations about ESG rankings. Here is the report from Time Magazine May 2022. "The world’s richest man complained that oil giant Exxon Mobil—which has been mired in controversy over?claims of climate denialism —was listed in the top 10 for ESG, while his electric car company was booted off the list entirely." https://time.com/6180638/tesla-esg-index-musk/ We have a long way to go. Sustainability is about making progress. ESG, for some, so far is largely about looking good.

I you or your firm is considering a Sustainabililty objective with an ESG reporting intitiative, or preparing for reporting implementation, there are many specific elements that your leadership team must address. A good starting point is an introductory training to outline what this is. Then a more in-depth training on what is involved with planning, managing, and reporting the many areas of compliance. https://sdgs.un.org/goals . We are ready to support your learning journey.

Bob Forshay, SupplyChainPro2Know