Over the years, there have generally been two ways in which business leaders have addressed their “business with a purpose” emphasis: initially, through corporate social responsibility (CSR), and more recently, through ESG (environmental, social and governance) actions.
As an initial approach, CSR began to gain momentum in the 1970s. The concept focused on how much positive impact a company had on society and often had an outward public focus. CSR tried to demonstrate that a business takes an interest in social issues, rather than just those that impact its profit margins. Often, this was done to attract customers and employees who share the same values. While the movement’s purpose was to demonstrate that companies were doing right by the world, but since every company’s approach was different, their efforts really couldn’t be compared.
ESG, which originated in 2006, is replacing CSR in importance and relevance because it offers the promise of tangible, measurable and comparable data that could quantify a company’s impact. From the outset, I have been a big fan of the ESG concept. While it was established to allow socially conscious investors to evaluate a company’s social behavior and make responsible investment decisions, ESG has continued to expand post-COVID. The environmental and governance elements are well-established with a range of standardized metrics available to measure impact. The “S” element tends to be less operational.
In time, I anticipate a range of changes, including more regulation, more standardization, and more investor and consumer scrutiny. This is a good thing. It will help the world to understand the significant, positive role that business can and should play in helping to address the important issues of our time. ESG has been described as the “next generation of the concept of business with a purpose.” But despite this positive trend, I feel there is still more that needs to be done.
P FOR “PARTNERSHIP” The big issue I have with ESG is that it is too company-centric. It evaluates individual organizations without placing emphasis on what they do in collaboration with others. While some ESG indicators focus on an organization’s participation in multi-stakeholder efforts, they do not play a prominent role in ESG frameworks. I argue that endorsement and participation in sector-wide efforts is important enough to receive separate attention.
What if there were another aspect of ESG that would evaluate the collective actions of companies coming together to address an issue in concert, not as individual units? What if a company’s participation in a collective process inspired more action than it would if the company acted alone? What could we achieve when the right combination of corporate actions comes together?
This is the reason I’d like to see the letter P for “partnership” added to ESG. A unified, sector-wide approach to ESG would help increase the impact of environmental, social and governance investments. We don’t just want individual companies to do right within their sector, but we want entire sectors to take an active part in solutions. This would significantly increase the ability to help address the big topics we are facing—global warming, poverty, education deficiencies, hunger and more.
Collective actions among prominent stakeholders, such as governments, the United Nations, academic institutions and civil society have been the hallmark of addressing the sustainability development goals, (SDGs)—a collection of 17 interlinked global goals designed to be a “blueprint to achieve a better and more sustainable future for all.” The SDGs were set up in 2015 by the United Nations General Assembly and are intended to be achieved by 2030. ESG has the potential to play the same role for the corporate sector. But for this to happen, business leaders must not only address their own indicators for their company, but also to work as a community to bring about change. This would bring life to the “P” in ESG(P) to help address crucial issues like climate change, carbon emissions, air and water pollution, human rights, data protection and privacy, and company governance structures.
If this concept were taken one step further, direct connections between the SDGs and ESG(P) could be established to reflect the positive contribution that the business world plays in addressing global issues—a real win-win for the world. That’s why I think it’s crucial for ESG(P) to be flexible and open to change, allowing for a natural evolution in our collective desire to improve our world.
Finally, doing good and being profitable are not mutually exclusive. In fact, they can be complementary, and can even offer a competitive advantage. Consumers respect companies that take a social stand. In addition, many employees express great pride and satisfaction when their leaders demonstrate that they care. There is something inherently noble about a company taking on one of the issues of our time and publicly stating: “We feel that this is wrong, and we are compelled to do what we can do to be part of the solution.”
Read More at https://vision.protiviti.com/insight/hong-kong-ceo-business-purpose-and-partnerships-future-esg