The rise of ESG signals a growing push for accountability

With new methods to track the environmental and social impact of business, consumers, employees, and regulators are looking for companies that add value to the planet.  

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Wisdom Weavers

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Tracking the environmental and social impact of business leads to greater transparency and accountability

In the global economy, products often travel through multiple localities and jurisdictions before they make it to market. Raw materials sourced in one country, may be processed and sold in entirely different countries, allowing some organizations to skirt local laws or hide negative environmental impact. Governments are regulating mandatory reporting laws that span the entire value chain to address the lack of oversight for multinational companies. For example, the European Union Environmental, Social, Governance (ESG) directive calls for EU corporations to report the impact of their entire organization, including manufacturing and trade conducted overseas.

Wisdom Weaver Giovanna Enea illustrates how the directive is already shaping European business. She shares, “with the new regulation, the financial impact is just half of the picture.” Instead, leaders will need to ask, not only how their business is impacted by climate change, but “how do your activities impact society and the environment?” She continues, “that mind shift is logical, but it’s not yet part of most companies’ DNA. Companies also understand there is a reputational risk because if you are irresponsible in your supply chain, knowingly or unknowingly, an NGO can also come out and shed some light on it.”

As the Director of Global Sustainability at SAP, Giovanna’s team helps develop software and solutions to enhance supply-chain transparency around carbon emissions, resource management, and fair labor conditions. Tech companies continue to find innovative ways to track, manage, and report organizational impact on communities and the environment. With a background in technology and climate risk assessment, Wisdom Weaver Dorothy Maseke believes that technology is a helpful platform to measure progress and translate information to stakeholders. In her work with the Kenya-based insurance group ICEA LION, she shares that “whatever solutions we come up with, we ask ‘how we can use technology so that it becomes more efficient, and so that our engagements are more transparent?’ In most ESG engagements, you’re dealing with communities. You’re dealing with indigenous people. You’re dealing with corporations. So, that whole transparency aspect is very important.” Wisdom Weaver Nadine Gudz notes that “consumers and procurement people are more sophisticated today where there are more standards and transparency tools that are being mandated.” As these tools expand, she sees an opportunity for greater accountability in business.

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ESG can help teams measure progress and inform decision making

Technology and software are making source tracing easier, but there is a growing need to communicate these metrics in a way that can be useful for policymakers, business leaders, and consumers. As an ESG advisor for Grant Thornton, Wisdom Weaver John Friedman has witnessed progress in measuring the environmental and social impact of business. However, he cautions, “all these metrics need to be subject to greater scrutiny, greater clarity, greater transparency, so that they are consistent, they’re comparable across companies and sectors, and their decision-useful.” When metrics are translated effectively, John believes they can be used to measure and shape progress in sustainable development. For him, data is accessible and decision-useful when it is, “useful for the investors who are trying to choose a sustainable investment or employees who are trying to pick where they’re going to work, but also for the management team of that organization to make sure the things they’ve identified as important are getting done.”

Measuring a company’s environmental and social impact is only valuable if it leads to greater accountability and action. The race to net zero to mitigate climate disaster is urgent and requires active collaboration. Giovanna emphasizes that “everyone focuses on reporting right now, but reporting is insufficient for change. It’s the foundation, but we cannot stop at compliance and ambitions. We are setting a lot of targets, but it’s tracking towards execution that should be focused on.” As an example, she highlights Unilever’s commitment to protect natural environments through deforestation-free sourcing by 2023. Unilever uses blockchain technology to trace raw materials and ensure that supplies are coming from sustainable farms. Companies can use similar technologies to measure their progress toward goals and document when they achieve important targets.

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Industries that lead in their environmental and social impact gain a competitive advantage

Corporate accountability through environmental commitment and execution increases consumer trust and can have a direct financial impact. John explains that the stock market represents a perfect example of how brand reputation and consumer sentiment can result in higher stock value. A 2020 review of nearly 700 corporate sustainable partnerships in energy and circular economy found that these partnerships had a positive impact on stock prices, with the greatest increase coming from companies that could monetize their sustainability efforts.

“Are they looking to comply with the regulations? That’s great, but if you’re compliant with the regulations, you’re not leading.”

John Friedman

Building on this idea, Wisdom Weaver Ken Bruder helps organizations create value from climate action. He shares, “companies that recognize that each stakeholder group has options are the ones that see new opportunities. Those that act on this knowledge find opportunities to articulate value in everything from social issues, environmental issues, chemical wastes, carbon dioxide and greenhouse gases, and regenerative agriculture in our agriculture systems. They recognize the value associated with the needs of their stakeholder groups and pursue new opportunities to move forward. Benefits include increased appeal to investors which increases access to finance, or better brand reputation in not only attracting new customers, but also retaining great employees.” In the future of corporate accountability, leaders will need to articulate their social value and impact. Giovanna explains, “not doing harm is not sufficient. To say, ‘We’re not polluting the environment,’ that’s what you should have done in the first place. So, the question is, ‘to what extent could we do reforestation, for example?’” To create a better future, she asks, “to what extent can we use our capacity to do more learning and development, and training the next generation with the skills that are needed for that transformation?”

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Coaching Empowers People

Coaching can help leaders take their goals from concept to reality. This process includes identifying measures of success, building capacity and resources, and tracking toward execution for greater accountability. Coaches can also help clients to anticipate challenges, consider how assumptions might be hindering success, and find ways to learn from setbacks.

Case in point, the Swedish Institute (SI) integrates education, coaching, mentorship, and peer support networks to develop sustainability skills of future leaders in traditionally underrepresented communities. The SI Management Programme in Africa and Asia works to build strategic leadership skills for managers who want to develop their expertise in sustainable business. Through the SI Management Programme, participants propose sustainable development projects in their home communities and organizations. Program leaders, coaches, and mentors then help participants identify what resources and steps they will need to achieve success. Participants gain valuable skills and insight from their training while also networking with other regional managers in the program. This helps to foster an alumni community where members share experiences and offer support when possible. To celebrate the completion of the program, SI leaders meet with their regional cohort to share the impact of their project along with future goals.