In an economic era underpinned by concurrent crises, critiques of ESG have emerged that position environmental, social and governance provisions as luxuries. As organisations batten down the hatches and reprioritise spending allocation, some – even among mainstream business commentators – have begun to question the merits of deploying resources to what may, superficially, look like expendable, “nice-to-have” initiatives. The politicisation, and resulting backlash, against ESG’s role in business have done little to assuage discomfort around dedicating human and financial capital to activities that might seem superfluous to an organisation’s day-to-day business.
Yet battening down the hatches is, of course, only one aspect of organisational resilience (what the Business Continuity Institute terms “a quality within organisations which allows them to manage crises and disruption to operations, resist sudden shocks and adapt to changes”). In that respect, ESG strategies – or, as might be put in simpler terms, sustainable and responsible business practices – help shore up organisations’ endurance. The World Economic Forum’s Global Risks Report for 2023 does identify the global cost of living and energy supply crises as the most severe short-term risk, but even in such a challenging environment, natural disasters and extreme weather events are seen as the next greatest risk, followed by economic warfare, failure to mitigate climate change, and the polarisation of society. Bleakly, the report identifies environmental breakdown as the common denominator of “tomorrow’s catastrophes”; its ten-year horizon to 2033 highlighting the expected results of the inadequacy of current approaches to preventing or preparing for climate change, and fostering social cohesion. Its experts warn of a “low-growth, low-investment and low-cooperation era and a potential decline in human development after decades of progress”.
Contrary to critics’ suspicions, sustainable and responsible business practices are about creating value in both the long and short term. By pursuing and embedding practices such as economic circularity, efficient resource utilisation, and supply chain diversification and management, organisations can better withstand the reverberations of geopolitical shocks and climate disruption. In doing so, they can contribute to global environmental stewardship. In the 21st century, good governance must go beyond the imperatives of establishing a profit margin to the entrenchment of sustainable business practices.
Investors’ expectations reflect this: where once the word “sustainability” might have been associated with utopian environmental protectionism, credible business figures such as Mark Carney (former Governor of the Bank of England and, as relevant in this context, ex-Chair of the global Financial Stability Board) are now publicly advocating for notions such as stakeholder capitalism or socially motivated investment. There is a widespread re-evaluation of “value” beyond simple profitability: in this expanded conceptualisation of “sustainability”, investor expectations reveal that it is not just sustainable financing which drives their choices, but all aspects of a business’s operations are assessed in considerations of what can truly be deemed sustainable growth. In addition to examining P&L statements and balance sheets, investors simultaneously scrutinise organisations’ performance in key environmental, social and governance metrics through indices, benchmarks, reporting frameworks and disclosures. End-users (such as customers), and the talent market, continuously demand responsible practices and value alignment at every touchpoint with companies they interact with. Similarly, despite the inconsistency of governments’ approaches (not least due to their over-reliance on electoral cycles), regulators across jurisdictions are increasing their requirements in order to meet national and supranational targets and directives; nobody wants to be seen to be falling behind.
ESG is a lens through which to navigate these market and policy pressures. Using it as an approach to sustainable and responsible business is one way of focusing efforts and an organisation’s strategy, helping it to set meaningful targets, managing compliance to regulation, and communicating progress with confidence and credibility. In this process, exercises that help an organisation understand and prioritise ESG issues that are material to its activities, provide a solid springboard from which to approach its strategic aims; reaching out to, and involving, stakeholders generate consensus and drive ambitions when considering initiatives and competitive positioning. When the time comes to build action plans, ensuring that these look long term, as well as address short-term pressures, sets organisations up for value and successes in truly sustainable growth.