Ignore the Headlines: ESG is Important

Contrary to recent headlines ESG is not dead, it doesn’t need unbundling into its constituent parts, nor refocused around just the ‘E’. If anything, companies should be doubling down on their commitments to all three aspects given how interrelated they are. This is particularly true in Asia where too many companies still struggle to understand why ESG matters (don’t you mean sustainability?), and more generally among SMEs who appear challenged in prioritising ESG commitments.

Yet, we probably shouldn’t be surprised that these headlines are popping up. The war in Ukraine, constrained supply chains, high energy prices, rampant inflation, angry consumers and the stark realities of climate change have placed enormous pressures on companies to respond effectively. And if company costs are rising and expenditures need controlling then perceived discretionary spending on ESG becomes an easy target.

ESG should not be viewed as a discretionary spend. Numerous studies have found that money spent effectively on embedding ESG goals makes it easier to raise capital, build a loyal consumer base, and retain and hire employees.

Part of the problem is that ESG’s protagonists have been remarkably bad at resolving ESG’s own governance structure. Instead, a multiplicity of overlapping methodologies and assessment structures have been developed, driven by competing organizations and financial institutions.

It is precisely this immense variability in approaches that has added the complexity and opaqueness that can be exploited through greenwashing and resulting in the recent calls from a spectrum of stakeholders for greater transparency and honesty.

McKinsey evidently felt they needed to come to ESG’s defence and in two compelling articles addressed why ESG matters and how to make ESG real. While the latter article is excellent, including laying out three levels of ambition to guide companies on their ESG journey, I’d like to offer a few practical thoughts for Asian companies who may be wondering what to do about ESG, or even why bother at all:

  1. ESG is not CSR and not just sustainability, it’s better. ESG are sets of standards that can help guide a company’s approach and policies to environmental, social and corporate governance criteria and can be viewed in parallel to financial goals. They also help a company to identify and address risks around these areas.
  1. Don’t worry, your company is probably doing many relevant aspects of ESG already but hasn’t thought about positioning them effectively. ESG checklists can appear daunting, but it is likely your company is already addressing some of the issues. Take it one step at a time.
  1. Take ESG to the heart of the company, don’t turn it into a box-checking exercise. In giving guidance to companies around reporting expectations, financial regulatory authorities have helped create an ESG response that is more box-checking than deeply committed. Moving beyond this base level response will transform how your company is viewed by stakeholders.
  1. Having a company purpose helps act as a north star for ESG plans. Purpose is a societal statement of why a company exists and the value it creates beyond profit. A well-crafted purpose statement can be the north star to guide all other ESG activities.
  1. Identify an internal champion to lead and drive ESG internally. Enthusiasm for ESG goals is as important as having the remit to make things happen. This can be an internal appointment and doesn’t need to be a new hire.
  1. Ignore the confusion about measuring ESG. Choose one methodology and demonstrate improvement against targets over time. If you change ESG methodology every year tracking progress is less meaningful.
  1. Use advisors appropriately. Everyone can do with specialist help, not least on how to implement and communicate ESG goals. Use advisors for their specific area of expertise, rather than one advisory firm across everything.
  1. Communicate consistently across platforms. Communications is critical and should be planned to reflect your company’s business and societal goals and aspirations. Messaging around ESG should be consistent across owned, earned, shared and paid channels.
  1. Communicate extensively to stakeholders. ESG communication shouldn’t be only an annual activity. It’s a journey where there are many opportunities to communicate both hits and misses along the way. Stakeholders will respect your honesty and transparency and reward commitment.
  1. It’s never too late to start. Just because others are further ahead on their ESG journey, doesn’t mean you shouldn’t start. Take the first step and you may be surprised at how well it is received by your employees, customers and other stakeholders.