Who cares about ESG?
Some years ago, in the business world, nobody cared about the social issues, the environment and, perhaps somehow, a few recognised that governance quality might improve business performance. Now we clearly are at a transition point. Although there are doubters, all of us are at least concerned about how ESG could have a meaningful impact on how we do business and how it may affect our capacity to get financing and retain the license to operate, either legal or moral.
A sudden change in the scenario from what nobody cares about, to what everybody is talking about, means that standard setters on ESG - a conundrum of organisations that have existed for many years, started a race to become the global standard setter. Sometimes to ludicrous boundaries, these lobbies, through their public announcements, created an open, cut-throat competition where NGOs representing different constituencies in business created more confusion than clarity - paradoxically, what anyone can expect from standardisation. However, thankfully, these paths are converging to a few central standards, with the IFRS Foundation and the European Union leading the way on corporate reporting standards and the TCFD is paving the way in the financial sector to better understand the climate impact aspect.
Greening the stuff
But at the end of the day, the physics of climate change and social dynamics have their roots quite far from accounting standards. So, financial and nonfinancial undertakings may divert attention to more relevant actions to cope with the challenge. The major challenge being to simply reverse the climate crisis, so more ink will not make the difference. Only making it green will help, so the main point is to analyse operations, understand how we impact climate, how climate will impact us and take immediate action. Whilst 2030 still seems like a futuristic movie, it is just around the corner.
On social aspects, the same. Maybe not as visible as the climate crisis - it depends heavily on the region on the planet - but most concerning because of the interdependence with the impact on the on climate. Migrations, social crises, and, a general lack of social cohesion added to internal political conflict and water and food shortages are all today 's social issues. One may ask why corporates should care about this - because it is convenient and necessary, there is no business, market or consumer in a world without social cohesion and a sense of justice. Environment meets social very quickly in this new global world painted by complexity.
The real thing
To tackle it and make a difference, corporates and governments may consider the importance of differentiating between soft and complex trends. I mean, trends like B Corps (companies that voluntarily meet the highest standards for social and environmental performance), ESG corporate reporting, green bonds and carbon taxes can and must change. Although these are things that are happening now, they are unlikely to shape our realities in ten years.
On the flip side, dicarbonisation of operations and mitigating or adapting to a changing climate are crucial. It also may be accompanied by understanding and coping with global social events such as the great resignation (massive withdrawals from the workforce after the COVID pandemic), shifts in the workforce with new generations taking over, and over looked themes such as biodiversity and water scarcity. Also, failure in governance due to poor anticipation of the real ESG impacts is essential to bear in mind.
Nobody will care in ten years of your sustainability report this year, but the lack of strategy and direct ion is your fiduciary duty if you are in charge of matters related to the corporate world.
So, the advice is to keep an eye on your ESG approach and strategy, find your competitive advantage in this volatile context, plan to execute with excellence, remain flexible to trial and-error. Your corporate reporting need not be an issue if you grip firm on the rudder in these turbulent ESG waters.