In the context of increasing legislation on guidelines, we have recently heard a lot of requests from all sides: ‘We want to achieve an A in the rating assessment’ or ‘Our competitors have adopted this index and we need to catch up and overtake them, so we need to think about measures to do so’.
There is no doubt that the evaluation of external ratings is very important for company personnel and is one of the factors that can accelerate internal initiatives. It is also important to respond in good faith to one of the external voices.
Some of the current arguments about ESG, including from policy makers, are that this kind of tick box exercise alone will not achieve the original purpose of sustainability and solving all the problems.
Unfortunately, this is true to some extent, even among the leading sustainability companies, and organisations need to look at the bigger picture and introspect in order to create a better world for the sustainability of the organisation and society.
Identifying a company’s material issues identifies risks and opportunities. However, the real risk a company faces is not a low ESG score in a rating assessment, but rather what the risks are to the organisation as a whole, including the external environment in which the organisation operates.
Considering long-term business risks means taking a holistic view of the world and implementing measures to minimise environmental impacts, such as climate change risks, and social impacts, such as human rights risks. It also creates opportunities to increase the value of the business while minimising such risks.
These are ESG considerations and policy issues, but many organisations do not fully understand the implications, and even the most ‘sustainable’ companies come tumbling down from their original purpose.
This phenomenon has evolved from corporate social responsibility (CSR), the predecessor of ESG, some 20 years ago, and has become a competitive sport involving numerical data and indicators like a high-scoring event.
It is important to remember that investors and other stakeholders look not only at quantitative data, but also at qualitative information such as CEO’s message, vision and strategy, as well as corporate culture.
While it is true that a rating agency’s assessment is important for short-term investments, partial transactions or bids by business units within an organisation, it is a mistake to lose sight of the long-term state of the organisation and its original purpose.
ESG, as part of sustainability efforts, is not something that can be achieved overnight, nor is it achieved in an instant with high scores. It is a long internal process – a Sustainability Journey – that creates a higher-value, more profitable and more sustainable business that will last for generations.
Before the reporting standards are formally adopted and we will apply, we recommend that organisations take a fresh look at what their real value is in creating a better world.
Photo by Joshua Sortino