Do This, Not That: Avoiding 7 Leadership Mistakes in the Age of ESG
#1 Treating ESG as a PR Exercise
Of course PR plays a critical role in amplifying a company’s ESG efforts and reaching a broader stakeholder base, but it shouldn’t be the focus of your ESG strategy. The greatest PR campaign cannot substitute for an actionable strategy that reduces material risk and creates value generating opportunities. ESG messaging won’t future-proof your business, only ESG management will.
Do This Instead: Start with a materiality assessment - determining the issues most impactful to your business success and most important to your stakeholders. Through this you’ll identify the issues that present the greatest risks and opportunities. The process will provide you with a deeper understanding of the interconnectedness between ESG issues, your company’s success, and the welfare of your stakeholders.
#2 Point Chase & Box Check
Whether it’s a green building certification like LEED or a top ESG rating like Institutional Shareholders Services’ (ISS) E&S QualityScore, point chasing gets you nowhere fast. Rather than focusing on the meaningful engagement of issues most critical to your business, you’re chasing the ‘low-hanging fruit’ of these point schemes, swapping long-term value generation opportunities for short-term ‘wins.’ The problem with this approach is that you sap your resources, energy, and time by checking boxes that provide minimal value to your stakeholders. In fact, this approach tends to intensify accusations of greenwashing, tokenism, and management ineffectiveness.
Do This Instead: To both maximize the commercial and societal impact of your ESG efforts, stick to the fundamentals. After conducting your materiality assessment, use the following step-by-step process to ensure systemic engagement for each material issue:
Outline the Business Case: Explicitly present the business case for engaging the issue. Outline both the potential risks mitigated and potential opportunities to capitalize, both for your company and it’s critical stakeholders.
Develop Enterprise ESG Policies: Put a policy in place that outlines your position on the issue and outlined corporate actions you will take and are taking to address them. This demonstrates an enterprise-wide approach to and understanding of the relevance of each issue.
Establish Goals: This item speaks to the famous business adage, “you can only manage what you measure.” If there are no explicit goals established, it’s safe to say continuous improvement and progress is not a priority. Make sure long-term goals and short-term KPI’s are established for each material issue so that all employees and stakeholders can move in the same direction, unified by a shared vision.
Develop Actionable Strategies to Achieve the Goals: After committing to WHAT the company plans to do, communicate the HOW in a clear strategy, or the series of steps the company will take to reach these goals. These steps must be actionable, measurable, and attainable. The HOW is often the most omitted aspect in typical corporate responses to ESG pressures. Real engagement requires real choices to be made. Make those choices explicit, clear, and cohesive.
Develop the Internal Systems & Processes to Execute: This essentially speaks to the details of how that strategy will be implemented. What internal systems, processes, and/or protocols must be developed to execute a strategy across an enterprise? Make sure these are standardized, monitored, and include a training element to ensure all employees are effectively contributing to the company's long-term goals.
Collecte Data & Disclose Progress Using A Credible Framework: The quality and comprehensiveness of your ESG reporting has an outsized impact on how you are perceived by investors, rating agencies, and stakeholders. As the regulatory environment intensifies regarding ESG and climate risk, the stakes have never been higher for proper ESG performance data disclosures. Make sure you use credible frameworks like the Sustainable Accounting Standards Boards (SASB) and the Task-force for Climate-related Financial Disclosures (TCFD) to maximize the reputational value of your efforts.
#3 Put All Your Eggs in the Corporate Philanthropy Basket
Of course anytime a corporation financially supports an environmental or social cause is positive and something to celebrate. In fact, corporate philanthropy reached record highs in 2020 during the height of the COVID-19 pandemic and global reckoning on systemic racism. Supporting non-profit and community efforts is aligned with the broader vision of ESG, yet depending on corporate philanthropy can be like plugging holes in a sinking ship. You can buy time in weathering the storm, yet the intensity of evolving ESG expectations will take you down eventually. This is especially the case if your donations are drips in the pail compared to your revenues, or if you do a “shot-gun” approach and provide small bits of funding to a broad range of causes irrelevant to your industry, geographic location, and/or brand. At the best, you get reputational value without the range of commercial, operational, and risk management benefits ESG provides. At the worst, you are accused of greenwashing (again), tokenism (again), and management ineffectiveness (again).
Do This Instead: Hone in on nonprofits and local community efforts that align with your material issues, are relevant to your industry, and are aligned with your brand image. Leverage your philanthropic funds as the financial vehicle for deeper collaboration across stakeholder groups and mobilize action on shared material issues and social missions. For example, instead of giving X$ to nonprofits working with the BIPOC community, develop a BIPOC talent pipeline with these nonprofits to both support your own DEI goals and drive tangible impact for both your company and your nonprofit partner. Consider this approach as THE approach to get the best commercial and societal ‘bang for your buck.’
#4 Call it an Initiative
Calling ESG an initiative implies there is a start and end. This sets you up for failure right from the beginning. An initiative implies this effort is peripheral to the daily operations and long-term vision of the company. This also communicates to your stakeholders, whether you’re aware of it or not, that you’re missing the point of all of this. Generating value and mitigating risk is a continuous act and something that requires ongoing focus. An initiative announcement may get you better PR hits on your social media accounts, yet the tangible value is fleeting, as is the stakeholder loyalty you had hoped to cultivate through this effort.
Do This Instead: Commit to ESG integration, or the systematic integration of your ESG strategy into the daily operations of the business. This will maximize the positive impacts to the business, to your critical stakeholders, and to your corporate culture. Most importantly, it signals to your Millennial and Gen Z employees that you “get it” and are all in on a “no BS” ESG strategy.
#5 Do the Bare Minimum for Compliance
With intensifying regulation at the federal, state, and local level regarding environmental and social issues, it can appear like basic compliance is an ESG strategy. Focusing purely on “following the rules” versus “mitigating risk and generating value” minimizes the opportunities ESG provides and signals a reactiveness approach to your stakeholders. This reactive, ‘back-peddling’ approach means you’re susceptible to a broader range of risks by doing the bare minimum. In today’s hyper competitive business arena, planning to do the bare minimum is planning to fail.
Do This Instead:
Lean into the systematic engagement of your material issues. This will not only ensure compliance risks are inherently addressed from the get-go but will also guarantee you maximize the business and stakeholder value from this effort. A focus on compliance is a focus on mediocrity, and a focus on mediocrity is a short path to irrelevance in the new normal of business.
#6 Underestimate the Risks of Greenwashing
With the amount of information at our fingertips, the risks of greenwashing have never been higher. Even companies with stellar ESG ratings are getting pounded for greenwashing accusations. As we’ve noted, any sniff of tokenism of ESG issues can result in public criticism. Even omitting critical information that’s less favorable, or downright damaging, can be viewed as a “bait-and-switch” greenwashing tactic.
Do This Instead: ESG issues are complex, and achieving meaningful progress across issues can be a steep hill to climb. Rather than omit any mistakes or go radio silent when you’ve stumbled along your ESG journey, aim for transparency. Communicate what your intent was, what the results of your efforts were, and how you plan to improve in the future. Outlining an actionable improvement strategy, and clear analysis of what went wrong, demonstrates both corporate transparency and a commitment to real progress. Without this type of transparency and accountability for results, greenwashing accusations are imminent.
#7 Think ESG is Someone Else’s Job
Although an ESG Director is the top authority for a company’s ESG efforts, the CEO is the one ultimately accountable for the results. With ESG performance increasingly being tied to executive compensation, corporate leaders are being pushed to ‘put their money where their mouth is.’ With stakes that high, development and implementation of an ESG strategy takes everyone’s contribution.
Do This Instead: Focus on cultivating an ESG-centric culture. By ensuring your say-do ratio is aligned, both internally with employees and externally with your key stakeholders, you are building the trust and shared vision needed to successfully execute an enterprise strategy. With employee engagement rates at historic lows, translate your ESG pressures into an opportunity to engage, energize, and empower your employees. By actively cultivating an ESG-centric culture, you create the conditions for a more impactful, productive, and personally meaningful employee experience. The results of this daily focus on culture will be reflected in your ESG performance, profitability, and reputation as a leader that “gets it.”
A company’s leadership and culture is ultimately what dictates its profitability, longevity, and success. With ESG becoming table-stakes for companies in 2021, Calibrate Partners helps executive teams translate their ESG pressures into opportunities for industry leadership and world-changing ideas to come to life. Contact us to learn more about how we help reduce risk, capture opportunities, and become the company of choice to your Millennial and Gen Z stakeholders.
For more information or a free consultation, please visit Calibratepartners.io or contact us at: Noah@calibratepartners.io.
