A study undertaken by Professors at Harvard Business School in 2020 revealed that the ESG (environmental, social and governance) funds and the companies with a greater commitment to ESG outperformed the markets when Covid19 shook the world. The millennials and Gen Z are more vocal and concerned about the actions companies and senior leaders take to make our world live longer as a habitable place to a prosperous community. Thinking about the ESG impact is not an option any more for leaders.
How do leaders see it?
Many forward-looking management teams are aware of the importance of the issue. The Joshimath saga, the forest fires in the Amazon, bushfires in Australia, wildfires in California and many more such incidents are examples of recent disasters that have shaken the conscience of the leaders. All these events are directly linked to the population increase and the eventual growth in commercial activities. Leaders in business, government and our societies have taken note of these and have been expressing their concern on a range of issues that businesses must wrestle with. These span from the impact on the environment to education, health, empowerment, diversity and equitable access to opportunities.
Though policies have been brought forth and awareness has been built, a lot remains to be achieved in terms of putting the intent into action on the ground. Large companies have committees involving the members of their Board to drive this agenda. Governments have mandated companies to contribute a part of their profits to this cause apart from the social welfare programmes that governments run and drive. Research conducted in the last 4-6 quarters has brought out a strong correlation between a company’s ESG actions and financial results.
Many organisations carry out their ESG actions merely as a to-do list of items on the compliance checklist. The programmes undertaken by them often are the low-hanging fruits that were available for the department in charge of CSR (corporate social responsibility) rather than mapping the activities they must undertake to drive results that are meaningful for the business and at the same time, for the environment and society. The idea of getting a member of the Company’s Board to drive this initiative is to ensure the linkage is established meaningfully and strongly. However, the reality is sadly a box-ticking approach in many places. Of course, the situation is getting better with each passing year and the programmes are increasingly getting strategic.
Companies have started realising that their programmes need to be such that they can create a lasting impact that helps everyone. For example, the business activity leaves behind a carbon footprint, creates polluting effluents or sells products and services that can potentially be misused or abused. Their programmes have to address these issues in a meaningful way.
The leadership team must think about how their programmes can create a lasting impact on the environment and society; as a result, they can build a stronger image for themselves in the minds of their customers, shareholders, business partners, employees and the government authorities. They will find many solutions and potential paths to traverse. However, resources are always limited and hence, they must choose a few paths that can truly differentiate their organisation from their competition and holds the potential to create the strongest impact.
It is time that senior executives see this as a growth driver rather than as a matter of idealism. Like they track the market activities of their competition, they have to track the ESG actions of others and benchmark theirs. It is time that the CEO’s performance is evaluated on his or her direct involvement in driving ESG actions and the impact created as a result of the ESG actions.