At the start of August, the Economist published a ruinous special report on Environmental Social and Governance (ESG), describing it as incoherent, overcomplicated and ‘Exaggerated, Superficial Guff, calling for simplification for both business leaders and the public.
Long-standing Board member of Inogen Alliance and recently appointed as Lucion Group’s Group Managing Director (which includes Associate Delta-Simons), Alex Ferguson delivers a strong rebuttal to the Economist's latest publication on ESG. Originally published and reshared from Lucion Group's article here.
ESG: A Simpler Time
According to the Economist, ESG is vastly overcomplicated and business leaders can’t progress their businesses when forced to focus on too many areas of ESG. Instead we should throw out ESG and focus simply on emissions only. The Economist is not alone in their idea of ridding the corporate world of ESG or at least simplifying it. In June this year, multi-billionaire Elon Musk tweeted ‘ESG is a scam’, starting a wave of ‘if it’s not perfect we shouldn’t do it’ responses. For me, and many people in the environmental industry, the whole concept of the need to simplify is frustrating.
What Is ESG And Why Does It Exist
The introduction of ESG brought corporate responsibility into the public domain. Business leaders are now being held accountable for the impact of their decisions whether in the boardroom or by the general public. Prior to ESG, many corporate activities that may have been harmful to the environment, society or the individuals within a business may have gone unnoticed. As investors sharpen their focus on ESG, businesses have been forced to think about their operations and their impact.
The term ESG has gained increasing traction since it was coined in the early 2000s by the UN’s Global Compact in their report ‘’Who Cares Wins: Connecting Financial Markets to a Changing World’’. The report recommended that to maintain relevance, companies and investors must acknowledge their role in working towards an ethical, sustainable and equal future and make commitments to improving the accountability/transparency of their businesses and investments.
Today, this advice remains as relevant as it did in 2006. However, companies are often lost in a series of topical buzzwords such as ‘Sustainability’ and ‘Corporate Social Responsibility’. These words, despite having a nice ring to them, do not support those trying to navigate themselves away from ‘greenwashing’ towards tangible activities that will strengthen their operations and work towards genuine progress.
This is where ESG stands out. It provides a comparatively simple framework for how businesses should approach this challenge. The key word here is simple. To put it bluntly, if you are a business leader and, as the Economist suggests, you aren’t capable of dealing with more than one focus then you wouldn’t still be in business. Those businesses that can’t cope with these multiple drivers that aim to limit our negative impact really don’t have a place in the face of the challenges we have in front of us. For too many years we have rewarded just one single focus, the ability to make money. We need to intellectualise business, we need clever leaders, not bullish risk takers. I wholeheartedly agree that yes, ESG is too much for one single focused business leader to handle. This is why we desperately need diversity within our organisations and our leadership teams in order to be able to achieve the multiple aims encapsulated under ESG. We’ve become very good at generalising and, at the same time, moderately bad at everything. It’s time to invest in diversifying our workforce and introduce key people into leadership roles to address ESG and make it work to protect both people and the planet.
The Death Of Simplicity
Simplification. The Economist put forth the idea that we should only focus on emissions and remove the distraction of the many other elements involved in ESG activities. Taking a very streamlined approach to a complex problem might be useful to track general impact at a high level and help facilitate the availability and visibility of topline data for the public. However, if we don’t also address multiple other climate change indicators, such as biodiversity loss and water shortage, when we look up from the emissions there will be nothing left, and the emissions challenge will be impossible to address if our carbon sinks (forests/coral reefs/peat bogs) are lost.
The dumbing down of everything…the belief that we can’t cope with anything more than a three word slogan…is at the basis of the problem. We need to fundamentally shift our thinking. Stop allowing ourselves to be stuck in the simple and embrace the complex. ESG is complex, because the global system is complex and we need to stop pandering to those who can only cope with one thing and expect more of our leaders, including our governments.
A Call For Leadership
The Economist calls for leadership. Here I agree with the article, in that what we need now, more than ever, is leadership. We desperately need leaders that seek to understand the issue and how it fits into the bigger picture. We need politicians that think and strategise, rather than seek the next sound bite. We need to encourage and incentivise the right behaviours and engage resistant business leaders in adaptive resilience.
Companies are resistant to change because they have been historically successful. If we are only going to act when something is certain, it will be too late. ESG adaptation is not being taken seriously enough. Businesses need to quantify and disclose the risks, invest in ESG future proofing and build corporate resilience, enabling a company's ability to adapt. ESG and sustainability teams need to be protected in the face of adversity, such as the COVID-19 pandemic. We need to take ESG one step further and build Environmental sustainability, Social sustainability and Governance sustainability. A stable, sustainable system for reducing impact consistently - a proactive approach to systems change - protecting against unforeseeable events, such as a pandemic, such as climate change related events, mitigating the risk of disaster.
Large companies have the ability to leverage impact. The window for companies to adapt and have impact is closing as costs start to rise and climate change ramps up. Action is needed now. What we are doing now is not enough. Faced with uncertainty we need to act in the faith that we are making a positive impact through moral choices.
ESG can no longer be thought of as a "nice to have” framework or a distant future goal. Business success is determined by corporate resilience and adaptation. We need to identify risks, quantify those risks and then implement mitigation strategies that don’t just sit with the ESG and Sustainability department but should be part of a companies’ culture. Integrated throughout the business.
As external audiences, key stakeholders and financial communities focus on how companies are making progress with ESG goals, the transparency on sustainable and socially responsible practices is crucial to the survival of companies moving forward. Investment in ESG should be fundamental to successful business.
How Do We Get There?
We need to continue our pursuit of ESG. ESG has already made headway in becoming the new common language for investors and whilst it might not be perfect, it allows informed choices to be made and businesses to be held accountable. We call out greenwash. We engage with business leaders to be knowledgeable about their impact and their companies' impact. We insist that when we invest we see commitment and action in all of these areas, or we don’t invest. We stop trivialising issues and say to the voting public, look, this is complicated and then we seek to explain it and give people the credit they deserve. Demand for action amongst consumers; highlighting the responsibility, commitment and action needed to accomplish positive climate action and build a more sustainable, resilient future. People are generally intelligent, interested and engaged. I’d go as far as to say that they are desperate for more information.
Media, politicians and leaders need to stop dumbing down and start clevering up…people are ready for it!
About the Author
Alex Ferguson is a Board Member of the Inogen Alliance, an Alliance of over 70 companies with a global presence, delivering projects in over 150 countries for a range of corporate, private and public clients.
Alex is the Group Managing Director having taken on the Group role following the successful acquisition and integration of Delta-Simons, where he was Managing Director for over six years. Alex is responsible for leading our company Managing Directors and Divisional Directors at Executive Board level, and for the overall commercial success of the Group.
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