The multiple crises of climate change, inequitable growth, pollution, and resource use have created an urgent focus on sustainability. Like other ecosystem stakeholders, corporations play a significant role in these issues. Consequently, we see strong sustainability statements from organizations globally.
These are complicated discussions because some are issues of externalities such as pollution or the negative consequences of consuming social media. These also involve the question of the value of intangibles like mental health and the appropriateness of trade-offs against accounting values. There is the worry of green washing when data is used without sound principles.
The S in ESG
As we progress, standards, regulations, and taxonomies are all around us, searching for a sensible way forward. Some issues like climate change get more attention, although still not enough to overcome the challenge. Other areas of impact, often the “S” or social, are more abstract but need more attention. Fortunately, these discussions are more frequent now.
Social factors go beyond employees and onto an organization’s customers and the broader community. These occur along the value chain, not just within the walls of corporate operations. Covering weighty issues of faulty products, pay equity, diversity and inclusion, health and safety, and work conditions, including the use of forced labor, these represent the essential role of an organization as a part of a broader society, contributing to all stakeholders, not just to shareholders.
The Role of Leaders
Whether mandated by regulation or fueled by a new data-enabled world, organizations must take on the challenge of knowing, measuring, and addressing their impacts on their ecosystems.
It is not about managing the ESG risk on the value of an investment. It is also about managing the impacts that our strategies, operations, and actions have on all stakeholders.
It is not about reporting metrics because somebody asked for it. It is about ensuring that things are moving in the right direction. The stakes are high and high performance is required.
Leaders have to assume this responsibility because the issues are very significant. Approaching these with the mindset of checklists and processes will not be enough. Leaders must continue to ask thoughtful questions of their stakeholders, such as
Are the ESG metrics improving?
Are their Sustainability efforts working?
Are they on the right track with people and communities?