ESG: a Distraction or a Revolution?

ESG: a Distraction or a Revolution?

ESG as a part of an organisation’s impact strategy ESG (in terms of issues relating to the Environment, Society and Governance) is headlining in the media, and in the investment and corporate worlds, but it’s not new – nor should it be treated as something separate to the rest of business. It’s a useful acronym but in essence focusing on performing well in these areas is just good practice for any investor or business organisation. Why you can’t ignore ESG – now or ever The underlying issues for society, the environment and good governance, have been with us a long time, as have the clearly negative impacts of ignoring these areas or not addressing them properly.

Author: Maanch – maanch.com

 

ESG as a part of an organisation’s impact strategy

ESG (in terms of issues relating to the Environment, Society and Governance) is headlining in the media, and in the investment and corporate worlds, but it’s not new – nor should it be treated as something separate to the rest of business. It’s a useful acronym but in essence focusing on performing well in these areas is just good practice for any investor or business organisation.

Why you can’t ignore ESG – now or ever

The underlying issues for society, the environment and good governance, have been with us a long time, as have the clearly negative impacts of ignoring these areas or not addressing them properly. Many companies and banks have been hit by huge fines or share price falls over the decades due to their poor governance, environmental damage or unethical practices, and these outcomes are bad for all stakeholders. These are not trivial amounts and certainly can’t be seen as “just a cost of doing business”. In 2010 the total compensation paid out by BP for the Deepwater Horizon oil spill was a mind-boggling $65BN! (see some of the largest fines here)
It can’t be sound business or investing practice to ignore ESG-related issues; now or at any time in the last few decades.

UK law isn’t a barrier

UK corporate law already states that organisations are fully responsible for all their actions. It is a myth that the legal duty of companies is to pursue only profitability and shareholder returns. This may have been the main corporate pursuit for decades but it doesn’t mean it was the law; or that it was right. Company leaders already have a fiduciary duty to the long term health of the business; and sustainability is a critical part of that (see Section 172 of the Companies Act 2006).
Also, as per the Principles of the Corporate Governance Code set out by The Financial Reporting Council (FRC) Principle A: A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

These clauses aren’t perfect. I support current efforts to go further; to tighten up the language, be much more proactive with efforts to be good corporate citizens, and further emphasise the importance of stakeholder responsibility. But a legal platform for good corporate behaviour already exists, at least in the UK. E.g. Better Business Act.

ESG as opportunity not just risk management

It’s not just about risk. There are profitable opportunities for organisations who use their business competencies for social or environmental good. A data consultancy helping to fight fraud; a bank using its technology and networks for greater financial inclusion; a retailer driving out human slavery and poor working conditions from its supply chain whilst increasing quality and security of supply. There are many examples and too many for here so this will be the subject of my next blog. In short, companies who look at solving the world’s problems, encapsulated in the Sustainable Development Goals (SDGs) as a framework for change, have the chance to grow revenues, and do good.

 

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