In the last few years, CSR has been overtaken by its more socially conscious sibling, ESG (environment, social, governance), as businesses attempt to respond to diminishing levels of public trust following the global financial crash of 2008. It might sound like an exercise in semantics – or even an attempt to ‘purpose-wash’ the boardroom for a twenty-first-century audience – but the move from CSR to ESG does actually represent a fundamental shift in the way companies operate.
Importantly, it marks a departure from the capitalist mantra of maximising shareholder returns at all costs and heralds a move towards a new operating model designed to calculate the impact of businesses across all its stakeholders: a transition from profit to purpose.
Choosing right over wrong
The findings of the latest JUST Capital
annual survey reflect changing attitudes towards the nature of corporate responsibility. Perhaps unsurprisingly, paying workers fairly and acting ethically at every level are key issues, with other ESG-related topics such as minimising pollution, combating climate change and cultivating an
inclusive workplace, all making their mark in the public’s top twenty concerns.
Most of us already know what ‘doing the right thing’ looks like. It’s about treating employees with respect, promoting equality, protecting the environment, and investing in communities. But whereas boardrooms across the globe have historically sacrificed their broader societal responsibilities on the altar of shareholder primacy, many organisations are today recognising that short-term gains – like tax savings – often come at the expense of long-term sustainable growth.
The fact that prominent investors and
fund managers are targeting sustainable opportunities while jettisoning more controversial investments is also shaping the corporate landscape, as climate change continues to present one of the most significant challenges of our times. And, as business priorities are realigned to accommodate the wider wellbeing of society, the old metrics of success are beginning to look outmoded.
Reaching some kind of consensus on how to assess the impact companies have on society and the environment may be trickier – although it will be crucial in the months and years to come.
Setting an example
Viewing ESG as a way of propelling growth and development, rather than as a barrier to profitability is key. Indeed, as organisations compete for talent, those companies with considered ESG strategies are likely to be well placed to attract the best and the brightest among those seeking careers within an ethical environment.
There are some pioneers who are leading the way with admirable commitment. The boss of premium outdoor fashion brand Patagonia, Yvon Chouinard, recently shone a spotlight on ESG with the
announcement that he was putting his company in the hands of a charitable trust – The Patagonia Purpose Trust – with all future profits (currently circa £87m a year) going to fight climate change. The brand’s website carries the message: ‘Earth is now our only shareholder’.
Chouinard joins other high-profile philanthropic figures like Microsoft founder Bill Gates, who has pledged to write himself off the rich list by
donating his wealth to charitable causes, and tech innovator Julian Richer, founder of the hi-fi chain Richer Sounds, who handed more than
60 percent of the business to staff in 2019.
Making a difference
Even if these grand gestures are a form of corporate theatre, they are, nevertheless bringing ESG issues into the public consciousness at a time when actions speak louder than words.
With headlines like these feeding the public appetite for change, more organisations will face pressure to confront their social and environmental impact on the world – and to make their own commitment to sustainable principles. If leaders have the courage to embrace ESG for its own sake – rather than using it as a cynical instrument of advantage – they will reap the rewards of doing the right thing for the right reasons.
For many
family-run businesses, ESG best practice is already baked in; the longer-term focus on people over profit is often a founding principle of successful multi-generational organisations. At qpeople we have pledged our commitment to
Do Nation. In fact, principled companies may well find that many of the metrics that fall under the ESG umbrella are already part of the fabric of their operation – the trick is pulling the information together into a formal ESG narrative.
In the wake of the pandemic, the relationship between business and society has been reframed. And, with personal sacrifices very much a part of Covid’s legacy, it feels as if everyone is being held to higher moral and ethical standards. Working together towards shared goals is no longer the pipedream of a few visionaries but the blueprint for a new generation of leaders and influencers – our long-term recovery may well depend on it.
