PeopleX: ESG — What Matters Now?
ESG. Environmental Social and Governance has appeared in the lexicon of business life as the evolved version of CSR (Corporate Social Responsibility).
The Harvard Law School on Corporate Governance states it all here, like this:
The Fundamentals of ESG
ESG grew out of investment philosophies clustered around sustainability and, thereafter, socially responsible investing. Early efforts focused on “screening out” (that is, excluding) companies from portfolios largely due to environmental, social or governance concerns, while more recently ESG has favourably distinguished companies that are making positive contributions to the elements of ESG, premised on treating environmental and social issues as core elements of strategic positioning. While climate figures prominently in ESG discussions, there is no single list of ESG goals or examples, and ESG concepts often overlap. That being said, the three categories of ESG are increasingly integrated into investment analysis, processes and decision-making.
- The “E” captures energy efficiencies, carbon footprints, greenhouse gas emissions, deforestation, biodiversity, climate change and pollution mitigation, waste management and water usage.
- The “S” covers labour standards, wages and benefits, workplace and board diversity, racial justice, pay equity, human rights, talent management, community relations, privacy and data protection, health and safety, supply-chain management and other human capital and social justice issues.
- The “G” covers the governing of the “E” and the “S” categories — corporate board composition and structure, strategic sustainability oversight and compliance, executive compensation, political contributions and lobbying, and bribery and corruption.
I’d add that they are all compliances, promises, pledges and commitments that are about a respectful and dignified way to conduct a business.
- Respect for the planet and a dignified way to use, regard and restore natural assets and systems.
- Respect in how we treat and care about our fellow humans; be they in our employ, value chain, supply, consumers and communities in recognition of the dignity they deserve and we afford to them.
- Respect and dignity in our decisions that are within the law, ethical operations and moral concerns we are allied to.
Executive Boards, Non-Executives, Shareholders, Investors, Regulators, and the public writ large all impact the decision making processes on where, how, when and what to “play” in the game of business.
If CSR helped us become more aware of our carbon footprint, recycling and consumption of materials, waste, energy and pollution, it has provided the starting point for many to head towards Paris Agreements, Net Zero targets and other sustainable measures.
But all is not as agreeable as it seems.
Take the most controversial billionaires around: Rockets, Mars and EVs occupy the headlines alongside management and work practices, declarations and acquisitions. Elon Musk — one of the richest people the world has ever known — declared that S&P 500 ESG rankings were a scam when Tesla was de-listed (and Oil & Gas giant Exxon-Mobil was retained).
Whatever your view on this expulsion, and the validity of things like ESG rankings, something has to be done to our ailing planet.
I could occupy this entire blog post with evidence of why but let’s just focus on a few headlines:
- 13% of yearly deaths in people in the EU are attributable to pollution. This WEF report here confirms that.
- We may only have 60 harvests left on the planet with the state of topsoil. It takes 1000 years to create 3 inches of fertile topsoil. One report here confirms this.
- By 2030 only 10% of our Forests will remain. See here
- CO2 emissions are still on the incline with only a brief decline since 1940 because of the pandemic in 2020. See here
- Between 1970 and 2016, animal species loss is put at 68%. WWF report here confirms this
So the E in ESG is a serious issue. An ecosystem of life already in a terrible state of imbalance with goodness knows what freak weather, pestilence and famine might ensue.
The S is also in a serious state of peril. Social injustice, right-leaning divisiveness and racism, dictators and of course wars in Ukraine, Yemen, Syria and beyond.
So the G needs to factor these into account because, well, no business is devoid of impact from any of these macro-level dangers.
This is where we come to look at how that G is enacted, positioned and the power it has and can yield.
Imagine this scenario.
A board agenda.
- Minutes of the last meeting
- Budget and Operational update
- Customer research and trends
- Executive remuneration and report to Non-Execs/Investors/Shareholders
- ESG update
- Any other business
- Date of next meeting.
5th on the agenda. After the controversial topic of salaries and bonuses and an obsession with budget, performance and customer data.
10 minutes? An hour?
It won’t be good enough.
If ESG doesn’t dominate the agenda, the whole executive process is a profit/budget theatre. And in most people’s assumptions about ESG, it’s never likely to dominate that agenda.
Our — perhaps controversial view — is that ESG becomes its own board.
With an agenda that is intricate, detailed, macro, meso and micro on all things that matter in those areas.
And importantly, away from the Exec Board or Operational Board BUT that advises, challenges and holds that board to account.
Practically you’re already going “But will it matter and make a difference?” It will if the G plays as strongly as it should/could.
Firstly, what’s its constitution?
The Non-Exec, Investor, Shareholder and Executive Boards will have to define this separation and of course, sanction both this separation, remit and power. Not an easy proposition. Yet there’s evidence that such a focus is not only desired but necessary.
The Confederation of British Industry commissioned The British Academy to research Purpose-led Organisations and showed compelling evidence that there was an outperforming element to those organisations. See here.
This more all-encompassing model shows that the inner workings of any organisation are linked explicitly to both the external forces/considerations and have an impact on them. And therefore should be modelled more specifically to reflect that.
Not just a moral conclusion here, grand though that is. But a commercial imperative. Purpose-led organisations — that go beyond simply stacking up profits or operating frugally within budgets — are more viable as a business AND provide good corporate citizenship.
Pressure is already coming to bear with investors who want their capital to go towards doing something that isn’t just profitable but has that greater good, or at least maps into the spectrum of viability and won’t become a dangerous outlier with a tarnished reputation and lost citizen/consumer confidence and support.
So, ESG comes into play with a remit and a purpose of its own — to steward Environmental, Social and Governance AND to ensure the board is operating well and within ethical, moral and societal parameters.
Who should be on it then?
- The People & Culture/CHRO/HR Director is an obvious choice. With the S and G being in people and their well-being, development and fair reward. The legalities and ethics of employment and representation.
- Supply and Partnerships Practice Lead is another. Who do we choose to work with in delivering our services/making our products? And how do we treat them and how are they in their green agenda, ethical footprint and fairness with people?
- People with lived experiences of difference. Employee Representative Groups are obvious candidates. The social justice, mobility and access of opportunity agenda. Fair and equitable treatment, gender and race pay gaps, disability, age and carer-friendly working terms that reflect people’s needs and commitments in balance with their gainful employment.
- Colleague Activists. Our own people who care deeply and research, campaign and support initiatives that bring more balanced ways of being and living to the world.
- Commissioned experts, advocates and external perspectives to inform, enable and support the work of the ESG Board and the overall mission.
My experience of this is not in the shape of Boards but in Citizens’ Assemblies. See here for the UK version of the construct.
Where a key — and perhaps even controversial decision needs to be taken — it is not a group of politicians, nor a group of experts but a group of citizens. Like a jury.
Given the context, expert inputs and data on the subject, this group then offers their decision on the way forward as either binding or advisory to others.
ESG should become the Corporate Citizens’ Assembly.
And look to things like Doughnut Economics to help steer their thinking/work. See Kate Raworth’s excellent work here.
Given the remit and power under that constitution, and some of the challenges the business is facing, this board can convene with diverse and expert, lay and engaged people to make that decision. Instructing and guiding the board to their view of what’s needed, important and that matters.
So Board Agenda revised becomes this.
- Minutes of the last meeting and ESG commitments and actions.
- Environmental — report and instructions from the ESG board.
- Social — representation and commission from the ESG board.
- Governance — update and actions from the ESG Board.
- Prosperity Measures — Financial and Performance Review to report to ESG.
- Customer research and trends to reflect on and report to ESG.
- Exec Remuneration in line with ESG recommendations.
- Any other business
- Date of next meeting in line with ESG schedule.
OK, so you might be thinking I’m even more naive. But why not? Why does the Board not handle operations and ESG advises, holds the Exec Board (and even Non-Execs) to account and represents the Environment, Social and Governance Stakeholders — beyond some token mention, PR exercise and under-allocated slot?
It’s certainly how we see ESG is not only something that HR finds a strong place within, but also, can represent a more intricate and focused vantage point and representation of the non-mechanical elements of operational existence.
Is this how your organisation is setting up ESG? If not how, and if not, why not?
If so, how is it going?
And note this is not some attempt to neuter an Exec Board who may — already — feel the heat from Non-Execs. It may be that the Non-Execs see their role as championing ESG elements and don’t like the idea of someone else making that representation. And that’s a conversation worth having.
Certainly what is apparent, is that ESG cannot become some form of agenda item and platitude. It has to have teeth, bite as well as bark. To correct course, focus on what matters now and in the future and go beyond balance sheets, and KPI scorecards and look at Human, Social, Natural, Intellectual, Material and Financial value (in line with Oxford Said Business School Professor Colin Mayer’s Prosperity Measures — see here).
And then maybe, we can construct — with ESG — our Human Economic Manifesto. Something we’ll talk about in a future PeopleX post.
ESG has a chance to mean something to what matters now. Not just be something that shows we’re playing the latest game of business.
Blah blah blah, said Greta Thunberg. Not invited to the WEF Davos spectacle, Rutger Bregman is still calling for maximum taxation of the billionaires who could make a massive difference to what ESG stands for. Rebel economist Umair Haque is calling for a move from Business to Betterness.
Emergency Saving Grace, and Environmental Social and Governance. ESG could be our formula for sustainable success, flourishing lives and vibrant economies.
At People and Transformational HR Ltd., we believe ESG can deliver a respectful and dignified way to conduct a business — into betterness—as a destination and a destiny.
Do you? And if so, what are your plans to make it so?