At the Monash Sustainability Breakfast in Melbourne today, I presented the audience with two challenges and one call to action. The two challenges:
1. Is it time to accept that CSR is dead, and if so, what is the value of ESG?
2. If Culture eats Strategy for Breakfast, does it also eat Sustainability?
Corporate Social Responsibility (or CSR), or Corporate Philanthropy is, I would argue, an outmoded unaccountable and undirected use of a business' wealth. Let me give you two examples, to prove my point. No one believes that funding the corporate name on the back of the Under 8s Soccer Team’s jerseys is a credible contribution to the adverse impacts of a company's activities, or that the wife of the CEO's corporate financial support for a Cancer Initiative, is acceptable today.
At the Business Council for Sustainable Development Australia, we consider that business has moved into the realm of ESG. And there are a whole host of reasons why ESG has become increasingly something of a business buzzword in recent years.
On the environmental pillar, the growing global net-zero movement is compelling businesses to update their climate plans, while factors including physical risks, customer pressure and investor engagement are prompting increases in ambition across wider corporate environmental approaches. And if we look at the social and governance side of that Agenda, the Covid-19 pandemic has highlighted and widened social inequalities (imbalanced work balance) has prompted a rethink of the purpose of the corporation beyond its profits for shareholders.
But while there is no doubt that businesses are beginning to respond to these demands, it is also being argued that the responses do not go far enough in the face of the scale of global environmental and social challenges. This is a criticism also levied at investors. Green investing is the new black (or is that green?), but should it be washed down with a cynicism, even if there is a groundswell of investor interest that has laid the foundations for a stronger ESG approach.
Now, just last week I shared with our members three business surveys that came out in the last week looking at the state and pace of corporate ESG adoption. These findings provide a snapshot of how businesses are framing ESG, which related topics they plan to invest in and how they are measuring the financial and non-financial benefits of a more purpose-led approach.
The first was a study by sustainability consultancy and solutions provider Alcumus. The business polled senior managers representing 621 businesses across the UK, the US and Canada, in an even split. The second is from a study by hybrid data cloud firm Cloudera, which surveyed 2,213 business decision-makers, 400 IT decision-makers and more than 8,600 knowledge workers globally. The third study was published by risk and compliance management software and services company NAVEX. NAVEX polled 1,250 managers and executives working at large companies, with an even split between those working in the US, the US, France and Germany. In those studies, there were a number of interesting statistics from all three.
97% of respondents believe enhancing ESG efforts will benefit their business in the future. The biggest benefits were identified by large businesses with 250 or more staff. Regrettably, no mention of SME in any of these studies.
60% of those surveyed said the main benefit of increasing their ESG focus was an improved reputation with investors and consumers.
Note that there is no mention that it made their business model more agile or more resilient to face future risks / shocks.
36% of respondents said an ESG focus has already helped to reduce operational costs, with a further 22% seeing cost reductions in the horizon. Now don’t get me wrong, cost reduction is important to be sure, but if that is the case, then surely you should have done it sooner? What kind of loss making business are they running?
More than one-quarter (28%) of respondents believe increasing ESG focus will increase employee satisfaction going forward. Again, encouraging to see, but only 28%?
28% of business decision-makers believe investing in ESG is more important than investing in the development new products of services. I think this can be viewed in two ways: It is either the first genuine shift in business model sentiment, or Sustainability has been subsumed by the Corporate Affairs and Marketing department
Four in five knowledge workers believe there is a need to use AI to make business practices more sustainable. No I with this agree, but technology is an enabler of change, not the driver of it. To quote Elon Musk’s business Mission - Tesla’s mission statement is “to accelerate the world’s transition to sustainable energy.” Not, we want to make more EVs.
All respondents believe their company should do good for the communities it provides services to. Note it refer to ‘Service to’ and not that it ‘Serves’ the community
UK business see Environment; as the most important part of ESG, and Governance; as the least important.
Just one in three respondents think their organisation is delivering 'very effective' performance across the ESG agenda.
So as we can see from the above statistics, While businesses are starting to respond and in many cases deeply strategising about ESG they are being held back by something. So what is it?
That leads me to my second challenge. If Culture eats Strategy for Breakfast, does it also eat Sustainability ?
That famous quote from legendary management consultant and writer Peter Drucker. To be clear he didn't mean that strategy was unimportant – rather that a powerful and empowering culture was a surer route to organisational success. And Australia’s!
So does Culture eat Sustainability for breakfast, or put another way, is an ESG lens, a sustainability initiative, a circular economy approach, mean nothing without a culture of sustainability?
Again to be clear - ESG, social impact strategies, circularity and sustainability initiatives, we know we need them.
Our team, the markets, the investors, and now in some cases, the regulators - want them.
Our planet and many communities demand them.
So we build plans and we establish quarterly objectives, we set ambitious KPIs and, if we’re bold (and that is not something you see in Australia business), make public statements about said ambitious goals. But even the best laid plans will fail if a team isn’t ready to understand and embrace the change. And I want to offer another thought to this issue. Business is not moral. It is amoral - unconcerned with the right or wrong of something - people are moral.
Imagine trying to put a sustainability initiative (oh, I don't know - like decarbonising a country's energy system or a company’s energy production or demand) in place with a handful of vocal, adamant naysayers on your team. These unhealthy pockets could/would/do (?) poison the well of optimism for the entire company. Now, where have you heard that scenario before?
But let’s also acknowledge the challenge, the need for empathy if you were to put such an initiative before a handful of people who are confused by, or reticent about the shift. Why? Because of the real fear about how the initiative would impact their day-to-day jobs.
I would suggest two things need to be present:
1. A culture that absorbs & radiate change: One that provides for a collective readiness, a mindset shift, a courage and resilience that only the most intrinsically motivated and deeply aligned team (whether a country, company, community) can muster.
2. A culture based on interconnectedness: A culture that recognises that the company is not a business structure, but rather, an organism that is part of the greater natural and social ecosystem. This argument can increasingly made about governments as well.
The DNA of the Sustainable Development Agenda, which was framed 50 years ago this year, is about those two aspects of culture I mentioned earlier - change and interconnectedness.
If the last two years taught us anything we are not separate from, or independent of, our natural or social environment. We are deeply connected to our stakeholders, and that includes our planet.
That’s why the recent World Business Council for Sustainable Development report Time to Transform, starts with the premise that business has the capacity but also the urgent need to Transform.
In the words of the former Unilever CEO, Paul Polman ‘I actually am a capitalist, and I believe in shareholders. But I believe in them as a result of what I do, not as a reason for what I'm doing. The same with profits - profits alone cannot be an objective. It has to have a purpose.’
So, across the BCSD Network, we think that business must and can dive headfirst and wholeheartedly into the culture of a productive, sustainable and inclusive growth model for our natural and social ecosystem. And be successful in doing so.
And to reinforce that the BCSD Australia members last year made that mind shift and committed to raise the ambition of themselves and this organisation. Raise the bar announced the adoption of a set of science-based membership criteria aligning Australian businesses with the transition to net-zero emissions. Australia was the first international Network Partner of the World Business Council for Sustainable Development (WBCSD) to embed the membership conditions focussing on climate emergency, nature loss and inequality, effective 1 July 2021.
And the call to action? Now is the time for big ideas.
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