The ESG question – corporate foil or corporate folly?

In a recent piece, the Sunday Times Associate Editor Oliver Shah used the war in Ukraine to decry the folly of ESG, writing that the movement fails “to grapple with the real world” and that the “monomaniacal” focus on ESG compliance is “counterproductive” and undermines the tenets of democracy.

He argued that the ESG movement is failing because of its inconsistency, and points to the example of the German government’s recent decision to increase military spending and reactivate coal-fired power stations to address energy supply concerns as a case in point. He states that in a race to prove themselves better than their peers, fund managers make conflicting demands of firms. And that where there was once space for nuance and interpretation, every ESG argument is now binary. Coal bad, wind good.

Shah is right up to a point.  The focus of ESG is too narrow (health and economic outcomes are excluded for example) and it is too much of a box-ticking exercise (that tobacco firms regularly top ESG rankings is a source of frustration for many).  But that’s not the fault of the tool, which is what ESG is – a risk management tool to improve investment decision-making not a technique to consider socio-political issues and catalyse deeper rooted organisational change. It is not, and as far as I can tell never has been, touted as a panacea for all the ills of the world (if only it were that simple.)

And yet. Look how firms have responded to the war in Ukraine. They have quite clearly acted in the interest of society, rather than profit – selling operations, shuttering outlets, mothballing production facilities. Cynics will claim that it is pure self-interest, that they are acting ahead of potential consumer pressure. And what of China? And the multiple human rights abuses there. Fair challenges both, the latter that will, ultimately need to be addressed. But it happened – and remarkably quickly.

The fact is, the boardrooms of Burberry, Visa, McDonald’s and others are now far more comfortable making decisions in the broader interest of society ahead of, and maybe to the detriment of, short-term shareholder value, because they know their investors get it and will be supportive. I can’t help but feel that the unrelenting focus on ESG over the past decade has helped to put the question of social value back at the heart of corporate decision-making.

Perhaps the problem lies with snappy three letter acronyms. Before ESG we had CSR (which as we discussed on our podcast here, is well intentioned but no longer sufficient in a new era of purpose-led business).  Luckily for us Shah advocates a new one, CDP – Common Sense, Decency and Pragmatism.

As beguiling as three letter organising principles are, they are not enough for our complex, connected world. Building shared social value is what counts. That’s a long game but needs to be done at pace. It needs partnerships – between public and private, national and local, corporates and suppliers, customers and employees, investors and investees.

It’s messy, it doesn’t fit a formula, or a department or a cosy silo. It’s an odd shaped project that requires the convening of disparate groups and the ability to help shape broad perspectives into clear actions.  And it’s one that comms teams are well placed to deliver – not via cheeky messaging, selective disclosure and creating distractions to divert scrutiny.  Instead it taps a deeper vein, our ability to deal with multiple stakeholders, each with different agendas, and trying to get them all pulling in the same direction. Preferably ours.

Andrew Brown is a Partner at Apella Advisors and hosts a regular podcast called The Little Questions, tackling the critical little issues across the world of communications, corporate affairs and beyond. Andrew is also a Senior Advisor to Birchwood Knight and a NED at Caldera Heat Batteries.

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24th March 2022

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