ESG in danger of becoming the 'new CSR'

I was on a panel a number of years ago and a business leader I admire hugely proudly described his company’s community outreach programme in Africa.

ESG credentials are not an end unto themselves, argues Jenny Scott
ESG credentials are not an end unto themselves, argues Jenny Scott

It seemed churlish to pick holes, but corporate social responsibility programmes were already becoming outdated. There was a snappy new three-letter acronym doing the rounds – ESG.

Fast forward and Environmental, Social and Governance metrics have become a shorthand way of codifying a company’s multi-stakeholder credentials. Perform well on all three counts – and tell everyone that you are – and you can access funding, new customers and a stellar reputation. Happy days.

But cracks have emerged over the years that risk ESG becoming the new CSR – well-intentioned but not fit for purpose, assuming that purpose is to create a more equal, inclusive society that isn’t careering towards climate catastrophe.

As is so often the case if a model is implemented without behavioural change to back it up – the head without the heart – it can trigger box-ticking that, at its worst, can just enable the status quo. Think compliant banks with AAA ratings just prior to the financial crisis. Or Boohoo and its simultaneous strong ESG ratings and allegations of sweatshop conditions in suppliers' factories in Leicester.

ESG was designed as a broadly subjective outside-in risk management tool for investors, rather than as an objective inside-out catalyst for deep-rooted change. But lines have blurred. If organisations are asking "What do I have to do to attract investors and customers?" rather than "What can I do to change society?", they are likely on the wrong track.

Because motivation matters in getting the right outcomes. An organisation that shoots for a good ESG rating might end up being very different from one that has a purpose anchored in fixing the challenges faced by society – that happens to result in a good ESG rating. It’s like the old adage to do what you’re passionate about and the money will follow, rather than always chasing the next dollar.

In other words, as beguiling as a three-letter organising principle is, it is not enough to drive change in our complex, connected world. We need to go beyond ESG. Building social value is what counts; organisations that contribute to a better society because of why they exist. That’s what can move an organisation from having a licence to operate to winning a licence to grow.

It’s a long game, but it also needs to be done at pace. It needs organisations to be anchored in a strong purpose that drives decision-making. It also needs partnerships to amplify impact – between public and private, national and local, corporates and suppliers, customers and employees, investors and investees.

It means putting social value back at the heart of business decision-making.

Communicators have a critical role to play at both ends of that process, and in the middle. We reflect the outside world to those inside, catalysing change, we can help crystallise an organisation’s purpose which guides the direction of that change and we’re connectors who forge partnerships and enable the change to actually happen.

It’s messy and it doesn’t fit a formula, or a department or a company silo. And it’s hard to sum it up neatly in a panel session. But a great place to start is the founding ideal of your firm – is it likely to fix a problem faced by society?

Focusing on that is exciting, impactful, likely to be profitable and will definitely get the synapses snapping in a way that box-ticking never can.

Jenny Scott is founding partner at Apella Advisors and former director of comms for the Bank of England

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