I am back in London for a week of exciting engagements. The top of the list is ESG. In my ESG presentation tomorrow at the GRC: The Resilient & Responsible Enterprise event, I am leading with a quote from the sage of wisdom, Ted Lasso, who stated, “Doing the right thing is never the wrong thing” . . .
Managing ESG in a Dynamic World
ESG – Environmental, Social & Governance – is seeing increasing pressure from investors, regulators, lawmakers, employees, business partners, and citizen activists. Pressure is mounting from multiple fronts for organizations to implement ESG reporting in their organizations. In one respect, this is an evolution of the past’s sustainability and corporate social responsibility (CSR) efforts. However, ESG is broader with more momentum. Where CSR and sustainability were too often (but not always) pushed from a marketing perspective, ESG has the momentum and force to become a significant measurement of the organization’s integrity. Integrity is what the organization commits to in its values and is a reality throughout the organization and the extended enterprise.
ESG is more than the E (environmental). Too often, organizations see that lead E, and they perceive that ESG is just about environmental values and climate change. It is so much more than this. The S (social) and the G (governance) are just as important as the E in ESG. There are many standards and various definitions for ESG; here is the high-level scope of it . . .
- E = Environmental. Measures and reports on the organization’s values and commitment to stewardship of the natural world and environment. It includes reporting and monitoring the organization’s environmental initiatives for climate change, waste management, pollution, resource use and depletion, greenhouse gasses, etc.
- S = Social. Measures and reports on the values and commitments and how the company treats people. This includes employee and customer/partner relations, human rights (e.g., anti-slavery), diversity and inclusion, anti-harassment and discrimination, the privacy of individuals (both employees and others), working conditions and labor standards (e.g., child labor, forced labor, health, and safety), and how the company participates and gives back to society and the communities it operates within.
- G = Governance. Measures and reports on the culture and behaviors of the organization in context and alignment with its values and commitment. This includes finance and tax strategies, whistleblower and reporting of issues, resiliency, anti-bribery and corruption, security, board/executive diversity and structure, and overall transparency and accountability.
ESG crosses business boundaries. Brick-and-mortar walls and traditional employees do not define the modern organization. The modern organization is a web of third-party relationships: vendors, suppliers, outsourcers, service providers, contractors, consultants, temporary workers, intermediaries, agents, partners, and more. To truly deliver on ESG requires monitoring and managing the shared values and integrity throughout the organization’s extended enterprise. Legislation and regulation are focused on this, like the European Union’s Directive on Corporate Due Diligence and Accountability with Germany’s corresponding Due Diligence Act (to name one of many).
THE CHALLENGE: Delivering 360° Situational Awareness of ESG
Business is complex – gone are the years of simplicity in organizational operations and processes. Managing ESG amid complexity and change is a significant challenge for boards, executives, and all levels of management as they seek to execute their ESG directives and deliver results to stakeholders.
The modern organization is:
- Distributed. Organizations have operations complicated by a web of ESG-related data scattered across many different systems. The organization is an interconnected mesh of ESG objectives, transactions, and interactions that span business units and even extend beyond the organization to third-party suppliers and vendors. Complexity grows as these interconnected relationships, processes, and systems nest themselves in ESG intricacy.
- Dynamic. Organizations are in a constant state of flux. Leaders constantly adapt strategies and solutions to remain competitive, sustainable, and compliant. This results in ESG processes and information that are continually growing and changing. Exacerbating all this chaos is the growing abundance of ESG regulatory structures policing it. This complicates the ESG environment of any organization, as any new change must be carefully considered in ESG impact and reporting, placing tremendous stress on leaders attempting to keep pace with evolving business.
- Disrupted. Organizations are constantly managing high volumes of structured and unstructured ESG-related information across multiple systems, processes, and relationships to see the big picture of ESG. The velocity, variety, and volume of ESG scope and data can be overwhelming – disrupting the organization and slowing it down at a time when it needs to be agile and fast.
In 1996, Fritjof Capra made an insightful observation on living organisms and ecosystems that rings true when applied to governance business today: “The more we study the major problems of our time, the more we come to realize that they cannot be understood in isolation. They are systemic problems, which means that they are interconnected and interdependent.”
Capra’s point is that biological ecosystems are complex and interconnected and require a holistic understanding of the intricacy of relationships as an integrated whole rather than a dissociated collection of parts. Change in one segment of the ecosystem has cascading effects and impacts the entire ecosystem. This is true in managing ESG in today’s organizations. Dissociated data, systems, and processes leave the organization with fragments of truth that fail to connect and see the big picture of ESG across the enterprise. Simply managing ESG data across different systems in spreadsheets and documents is prone to errors, unreliable, impossible to audit, and very costly to maintain.
THE BOTTOM LINE: Lacking an integrated view of ESG results in business processes, partners, employees, and systems that behave like leaves blowing in the wind, constantly moving and churning but often only creating a further mess. Modern business requires a coordinated ESG strategy and process across the organization enabled by technology for efficient, effective, and agile ESG reporting and monitoring.