How your approach to ESG could be making or breaking your business

There’s much said in boardrooms – and by boardrooms, in public reports, marketing, advertising and media articles – about Environmental and Social Governance (ESG) but aside from having isolated environmental targets and initiatives in place, there’s arguably little of real substance when it comes to looking at ESG in its entirety; ensuring ESG principles underpin everything the organisation does and, in particular, that there’s a strong focus on the Social aspect – the ‘S’ in ESG – in terms of people, purpose and culture. Because, let’s face it, it’s this aspect that needs to come first. Here, we look at why and how.

In short, effective stakeholder governance provides an opportunity to differentiate and gain competitive advantage; to turn rhetoric into reality. Get this right and everything else will follow in terms of reputation, prosperity and sustainability. This need has always been there, of course. It has just been accelerated by the Covid-19 pandemic.

To date, the ‘S’ in ESG has, rightly or wrongly, been overshadowed by the Environmental aspect. Global net zero goals are of course to be applauded, but the roadmap for all organisations is complex and taking up masses of time and brainpower. You only need to look at PwC’s latest recruitment drive to see that consultancy in this area is expected to be a booming business. PwC says it plans to increase its global headcount by more than a third over the next five years in a bid to capture the market for ESG advice.¹

In line with all this, UK Chancellor Rishi Sunak announced an array of green initiatives in last year’s Budget, with a view to making a transition to net zero. Amongst those was the announcement that the UK would be the first country in the world to make Task-Force on Climate-related Financial Disclosures (TCFD) aligned disclosures mandatory. This ensures that British companies have to report in line with the TCFD by 2025.²

Insights from the people that can really help make a difference – employees, customers and communities – are always conspicuously absent in all of this. So much so, that you could be forgiven for thinking that this is a challenge for the board and the board alone.

A recent report quantifies the extent of the current problem: 93% of boards don’t have a clearly defined ESG strategy.³

The report authors state: “From Covid-19, through to Black Lives Matter and Brexit, boards are spending more time reacting to external forces than proactively shaping them, and at the core of these matters are stakeholder issues. Good stakeholder governance presents a unique opportunity for boards to take control of their agendas and be the good custodians they want to be.”

It’s worrying that organisational ESG “strategy” might be led more by the latest social media debate than it is by the people that really matter to the future of the business; namely employees, customers and the communities in which they operate.

Taking control of the agenda, has to start with insights; listening to employees, customers and communities in a structured and ongoing way. And ensuring that those insights – about everything from the environment and sustainability to technology, management practices and wellbeing – help shape policy and practice. This isn’t about a once-a-year satisfaction survey. It isn’t even about instating a Non-Executive Director (NED) with stakeholder engagement responsibility and holding a few focus groups. It’s about ensuring that “people” are firmly rooted in an organisation’s philosophy and values, not dictated by legislation.

Of course, the legislation to help ensure this happens is in play thanks to 2018 corporate governance reform.⁴ 

But this shouldn’t form the overriding “reason why”. And, right now, this legislation is leading more to tick-box style behaviour by companies of all shapes and sizes, as opposed to a cultural change programme. The latter is what’s needed. Why isn’t it happening on a wholesale basis? There are undoubtedly lots of reasons but one of the key ones is that organisations are inherently siloed, in terms of departments, subsidiaries and software systems. And gathering and using stakeholder insights to improve experience and, ultimately, engagement, demands a much more joined-up approach.

It’s time to think about things differently. Instead of seeing ESG as an isolated objective – or focusing on net zero goals to the detriment of stakeholder governance – and instead of tick-box initiatives, disjointed departments, software and communications that fail to connect, it’s time to take stock. It’s time to create efficiencies, establish an integrated approach to gathering people insights, improving experiences, creating policy and practices that are better aligned to business and people needs. This is what meaningful ESG strategy is all about. And that is where experienz can help.