What’s Wrong With Traditional ESG
“Mother Nature is not waiting. We are at the verge of the abyss.”
These harrowing remarks were made by UN Secretary-General Antonio Guterres at the 2021 Leaders Summit on Climate. “Leaders everywhere must take action - every country, every region, every city, every company and every industry.”
With corporations around the world announcing lofty goal commitments for reducing their carbon emissions, enhancing Boardroom diversity, and leveraging their business to engage societal challenges, how come more progress hasn’t been made? “You can look at a company’s website and see their sustainability report and it will look great,” says Alberto Carrillo Pineda, a founder of Science Based Targets initiative, a global effort to assess corporate action on climate change. “But then when you look at what is behind it, you’ll see there is not a lot of substance behind those commitments or the commitments are not comprehensive enough.”
The substance, or the environmental, social, and governance (ESG) practices that are the vehicle for achieving these audacious commitments, has clearly been lacking. But Why? If corporations around the world know ESG issues - like climate change, employee welfare, and natural resource stewardship - present risks and opportunities to the business and its critical stakeholder groups, why hasn’t greater progress been made? And how do we accelerate this progress when both our organizations and society at large depend on it?
What’s Been Wrong With the Conventional Approach to ESG
The current approach to ESG typically looks like this. First, senior leaders, guided by an in-house or external ESG consultant, develop some goal commitments and a strategic plan. Next comes a massive PR campaign so that all stakeholders - investors and consumers primarily- know about the valiant effort and path forward. Executives are psyched, stakeholders are temporarily placated, and the Board of Directors can exhale a sigh of relief.
But when it comes to actually executing on that strategy - where the rubber meets the road in all of this - implementation typically stumbles, enthusiasm wanes, employees have their ‘day jobs’ to deal with and the strategic plan becomes another dusty document on the corporate bookshelf. The culminating result of all of this? Minimal results, minimal value, minimal impact. Even worse, you’re accused of greenwashing and your credibility goes out the window.
With the clock ticking and our global economy, and societal stability for that matter, depending on corporate ESG performance, why does this keep happening? It comes down to three critical reasons:
The Lack of a Co-Creation Process: Improved ESG performance is the destination. The path to getting there matters. Process matters. In the conventional approach, employees who are closest to the work aren’t engaged in the planning process, aren’t provided the training and support to implement it, and aren’t empowered to act when things don’t go as planned.
The Lack of Context: The strategy is overly prescriptive and lacks the specific context of the business, it’s future plans, and its critical stakeholder groups. Energy and resources are depleted trying to implement a strategy that was designed to fail from the start. Employee frustration continues to rise and ESG performance continues to falter. This becomes a depleting self-reinforcing cycle; the greater the employee frustration, the greater the challenge in achieving consistent ESG progress.
Lack of Daily Integration: ESG efforts continue to be peripheral to the daily operations of the business, minimizing any commercial value and economic opportunity. The needle doesn’t move on emission reductions or resource management goals, and employees are calling (or atleast thinking) BS* more than ever. Your Millennial employees, which will make up 75% of the workforce by 2025, start looking for their next jobs. And your investors, well your investors at the very least vote against your proposals, and at the worse remove you from your position.
The final result? Time, resources, and energy are lost. Stakeholder trust is damaged and employee morale is at an all time low.
It doesn’t have to be this way though. By prioritizing leadership and workplace culture to build an authentic ESG culture. Why start here? Because as we know, when external conditions change, strategies change. But culture remains intact. Don’t let your company’s ESG aspirations become a nightmare for you and your people. Here are a few key guiding principles to help you make ESG performance your competitive advantage, and the vehicle for a more inclusive, productive, and empowered workforce.
Assess the Landscape, Internally And Externally: You first need to assess the role ESG plays in your business ecosystem. How do industry trends create risk and opportunities to your business and your critical stakeholders? What are the unique ESG pressures and expectations of your critical stakeholder groups? And what’s the current culture like at your company? The answers to these questions will help you set the stage for the “WHY” and garner greater support from across the organization.
Leverage the Power of Participation: The materiality process - or the process of determining the ESG issues most important to the business and its stakeholders - must encourage mass participation from employees across the organization and at every leadership level. Results from Gallup’s 2021 “State of the Global Workforce” Report reveals that 85% of employees are actively disengaged at work. If we all know that more engaged employees are more productive, healthy, and adaptable, why isn’t it a priority in the ESG process? Leverage your materiality and strategic planning process as an employee engagement exercise, providing a variety of pathways for employees at every level of the organization to contribute their insight, articulate their aspirations, and develop a personal connection to the company’s corporate purpose. Ensuring ‘your purpose’ is ‘their purpose’ is fundamental to building an ESG-centric culture.
Create a Shared Vision Built Around Your Company’s Strengths: Yes, we have some pretty big problems to solve, but overly fixating on your company’s ESG performance as a “problem to be solved” saps your people’s passion and ingenuity. By focusing on creating a shared vision of “what could be,” or the company you could become, you are building upon “what works” rather than “fixing what’s broken.” And perhaps most importantly, the process - focusing on your corporate strengths, creating a shared vision, and designing a plan to get there based on those strengths - enhanced employee relationships, team trust, and a sense of shared ownership in the company’s future success. The end strategy may look no different on paper, but the process of getting there will be a transformative experience in itself.
Focus On ESG Integration, Not ESG Initiatives: New Initiatives - a new plan or process to achieve something - tend to be the corporate response to some sort of crisis, controversy, or external pressure. Senior management exclaims, “we’re launching a new initiative so that never happens again!” The challenge with treating ESG as an initiative is it implies an end date. The reality of the situation is climate change isn’t going anywhere and organizations are still run by people. Therefore ESG is not an initiative, it’s just the new normal of business in 2021. The goal should be integration - embedding the strategy into the daily operations of the business - so that all departments, teams, and individuals are contributing to the company’s ESG performance and achievement of the shared vision on a daily basis. And the result? The alignment of your purpose, your people, and your processes to ultimately achieve long-term profitability and success.
Calibrate Partners
Calibrate Partners was founded on the premise that a company’s culture is the source of its innovation, profitability, and longevity. And culture is ultimately a reflection of the daily behaviors and decision-making of an organization's leadership. To successfully navigate the risks and opportunities of today’s volatile business landscape, ESG needs to be embedded in every aspect of the business and reflected in the daily operations of the company. Achieving this requires leadership at every level of the organization, an inclusive learning culture, and an ESG strategy built from the collective wisdom of the workforce. Contact us to learn more about how we can support your company’s leadership, culture, and strategy to make ESG performance your competitive advantage and the driver of your long term success.
Please visit Calibratepartners.io or please contact us at: Noah@calibratepartners.io.
