Vision
Forging a Vision Through ESG
The Board: Honesty, Integrity, and Transparency
To become a brand which everyone trusts, and one which is synonymous with the values your customers hold dear, your organisation must adopt a “top-down” approach to ESG. This is today’s corporate imperative.
According to a 2019 PwC survey of over 700 public-company directors, 56 percent believe boards spend too much time on sustainability. A lack of diversity on boards can be blamed for some of the myopia, but it also stems from careers spent on an all-consuming quest for profitability while dismissing modern social imperatives.
While ESG implementation will be delegated to individual business units, boards play a key role in establishing a clear strategic direction, focusing on the long term, and developing a plan to avoid fragmentation and duplication. A lack of commitment from the board to make decisions that fully integrate ESG factors and create long-term value is the most significant challenge companies face today in generating long-term value through a strong ESG proposition.
Change requires board-level education, and the fostering of a commitment to recognising that honesty, integrity, and transparency are the hallmarks of a trusted brand. The alternative is to descend into the chaos which befell Kodak: the world’s biggest brand collapsed because the board failed to recognise – and report on – change. Or Volkswagen, now a byword for corporate dishonesty vs. quality and performance. Kodak sank without a trace, and Volkswagen is spending billions in rebuilding consumer trust.
Don’t forget outstanding employee relations
The talent acquisition challenge is at an all-time high, organisations must seize every opportunity to meet the expectations of prospective employees. Consequently, HR directors have a unique opportunity to make social sustainability a key tenet of their own marketing.
The pandemic demonstrated that the work of employees and their willingness to make sacrifices were essential to the success of employers. With many managers desiring a return to the status quo – with pay, conditions, and culture in many cases remaining unchanged – an increasing number of employees are unwilling to accept “business as usual”, and higher than normal turnover rates are harming growth.
By increasing environmental, social, and governance efforts, the active management of workforce health, safety, and opportunity affects recruitment and retention. It is clear too that younger people are gravitating to organisations which have demonstrated a commitment to environmental protection and social justice.
Don’t become the news story!
The bigger the organisation, the more people are watching. Referencing the Volkswagen emissions scandal again, it highlights how one mistake can be serious, but systematic deception can be devastating. A well-implemented ESG program offers protection by instilling an ethos at all levels that profitability-at-all-costs cannot work.
Beware of the triad of financial pressure, opportunity, and rationalisation. Compensation and financial incentives can create a pressure to be dishonest or even to commit a financial fraud. The motivations can often begin innocently enough, such as an overly-zealous marketing director engaging in “greenwashing”, itself a form of corporate accounting fraud.
Enhance your organisation’s reputation
Exploring brand affinity, Deloitte’s recent report explored the impact of ESG:
“Increasingly empowered consumers and more activism-oriented investors are pushing organizations to address ESG issues concretely and transparently…they are fuelled by the transparency afforded to them in the digital age and they are increasingly putting their money where their values are.”
As the analysts Gartner have said, if business priorities from 2000 until 2020 were dominated by Digital Transformation, from 2020 it’s ESG which will have centre stage in the boardroom. Fresh impetus has stemmed from the global drive to Net Zero, and the onset of a true energy crisis coupled with an acceptance of the climate emergency puts us all in the spotlight.
1 MSCI, “Three Major Channels from ESG to Financial Value”, citing Chava 2011 20+ studies, both academic and industry, and Deutsche Bank 2012, et al.
2 Gunnar Friede et al., “ESG and Financial Performance”, Journal of Sustainable Finance and Investment, October 201, volume 5, number 4, pp. 210 – 233.
3 Gartner, “The ESG Imperative: 7 Factors for Finance Leaders to Consider”, June 10, 2021.
4 BDO United States, “The Sustainability Edge: Business Benefits of Embracing ESG”, citing 2021 survey conducted by the Chapman & Co. Leadership Institute.
