Let’s look at the bad aspects first. “Bad?” you say. “But ESG is good!”
Of course it is. Having a rigorous and purposeful ESG policy is a good thing for so many reasons. However, if you're not tracking, measuring, and reporting your progress, someone is going to find out. Very quickly things can, will, go south. The media finds out. Articles are written. Your organisation is removed from critical indices. Your shareholders and customers react. And your brand, having taken a significant hit from all sides, has a long journey back to a position of trust.
Then there’s the backlash against ESG policy altogether. Back in May 2021, Kenneth Pucker in his article for Harvard Business Review puts forward a fairly stern position - that we’re confusing output with impact. He also addresses the continued rise of environmental damage and social inequality in spite of the increase in companies measuring and reporting on their environmental, social, and governance (ESG) performance. It’s sobering stuff, but not all doom and gloom. Pucker, the ex COO of well known brand Timberland, puts forward some very compelling suggestions to improve ESG measurement and reporting so that impact is the result. He writes:
“Change the system…A sustainable system will ultimately require a paradigm shift from the prevailing goal of wealth creation to one of well-being, and a shift in focus away from GDP and toward something akin to the OECD’s Better Life Index.”
Profit. With your organisation’s stakeholders in mind, it’s the end goal. No doubt about it. Customers, people, and money drive commerce. These key factors directly influence the creation and distribution of your products and services. And we come full circle back to profit (via revenue). However, it is ethics and governance that will decide whether your profit is sustainable or not. Pucker puts it this way:
“Ultimately, corporations exist within a broader system. The obsession with shareholder primacy has served executives and investors well, but it has left younger generations with a staggering bill.”
If we want to decrease the ‘staggering’ bit, we must look at ESG comprehensively, starting with an approach to ESG that is wholly inclusive. Give your people a seat at the table. Give them agency to engage in the conversation, let them participate in the solution, and give them the tools to create genuine impact. The idea of profit with purpose is possible. A good ESG framework is complementary to the UN Sustainable Development Goals (UNSDGs). There is a common language and there are common goals.
That’s what we strive for when engaging with clients. That and the idea that in spite of the macroeconomic and geopolitical influences such as the war in Ukraine, inflation, COVID-19’s long ‘tail’, border tensions in SouthEast Asia - all things that apply pressure in the short term - above all, ESG frameworks need to think in the long term. In his article for the World Economic forum, Chairman of New York Life Investment International, Naïm Abou-Jaoudé writes:
From an investment perspective, incorporating ESG analysis alongside traditional financial factors adds to our holistic understanding of risk and opportunities and long-term value outcomes.
You’ve got to start somewhere, right? And as we know, there is a growing list of companies with incredibly promising ESG frameworks and policies ready to go. It’s just that they’re sitting on the boardroom table. The hurdle is where to start. That’s where we come in.
According to the Australian Banking Association, the largest portion of Australian companies - a whopping 98% - are classed as small to medium-sized enterprises. Many of these are still in recovery mode from the effects of the pandemic. That said, incorporating elements of your ESG policy into that regrowth phase will have a positive influence on staff and client attraction, retention and development.
All businesses have a real opportunity to drive climate mitigation. On average 25% of a company’s carbon footprint can be attributed to its employees. Thinking differently about how staff can be engaged in the process of kickstarting, adopting and evolving your ESG policy will be critical to your ESG success.
To book a meeting with our team to discover a tailored way to make Profit with purpose possible, please click here.
Written By Natalie Simmons, Managing Director ESG, Purpose and Sustainability Advisory.