Leading ESG
One of the fastest growing priorities for organisations now is ESG. The momentum behind ESG is extraordinary and organisations across all sectors are rapidly mobilising efforts to establish their presence, practices, and reputation across all domains of ESG.
As with any significant movement ESG has its fans and sceptics. The fans can envision the long term benefits that ESG can bring to both organisations and society more broadly. The sceptics remain cautious based on early efforts that were often characterised by short cuts and ‘greenwashing’. All of this has significant implications for leaders and talent who must navigate a myriad of expectations, views and aspirations to realise the benefits and opportunities of ESG.
For those not familiar with ESG, ESG stands for Environment, Social and Governance and while the movement has gained considerable momentum in recent years the catalyst for ESG can be traced back to 2004 when Kofi Annan, then the UN Secretary, asked major financial institutions to partner with the UN and the International Finance Corporate to identify ways that they could integrate environmental, social, and governance concerns into capital markets.
ESG is fundamentally about companies having a positive impact on people and the planet and ensuring that their policies, practices, and behaviours measurably impact their intentions in areas such as, the environment, care for communities, diversity, equitable work practices, and ethical business practices. While a commitment to the triple bottom line and corporate social responsibility (CSR) is not new, the ESG movement has brought much greater emphasis on evidence-based approaches that demonstrate direct action and measurement (not just commitment and policy). This is particularly so in areas of climate change and carbon reduction.
ESG data and evidence is not simply driven by regulatory requirements and compliance. It provides investors and consumers with information they can use to make informed investment and purchasing decisions. This might include measuring the company’s carbon footprint, reporting on gender pay difference or sharing how supply chain processes produce more positive green outcomes.
Initially organisations responded to ESG as a means to manage risk and compliance. Increasingly, organisations are embracing ESG because they recognise the social and commercial benefits of incorporating sustainability and ESG principles into their corporate and investment strategies. According to the McKinsey report, Five ways that ESG creates value (Nov 2019), global sustainable investment now tops $30 trillion - up 68 percent since 2014 and tenfold since 2004. It represents around a third of assets under management globally. According to McKinsey, ‘The magnitude of investment flow suggests that ESG is much more than a fad or a feel-good exercise’.
The journey of ESG is rapidly moving from:
From operational initiative to strategic imperative
From compliance and risk management to value and impact
From the right thing to do to the smart thing to do
(In time) From a new way of working to a new normal
According to Yatra Forudi, a Director at Rennie Partners, “it’s important for companies to see through the hype and noise of ESG, right into its substance. Alignment with ESG is a long-term investment rather than a short-term trend, and so its adoption must be holistic”
Rennie Partners is one of several emerging players in the ESG consulting market. Established in 2021, they advise organisations on how they can navigate, and optimise the transition to a net-zero and sustainable future. The firm has experienced rapid growth in just over twelve months of operation, with a team of 30 professionals now advising clients across strategy, commercial and regulation.
Why ESG and Why Now?
The US and Europe are ahead of Australia when it comes to ESG, but a combination of local and global factors has contributed to the rising interest of ESG in Australia.
The bushfires and more recently floods across Eastern Australia have put the issue of climate change front and centre in the national dialogue.
The COVID-19 pandemic has caused people to reflect on many aspects of their life including, work practices, purpose and meaning at work, and social responsibility.
Increased awareness of discriminatory practices and responsible behaviours through movements such as Me Too and Black Lives Matter have brought significant attention to the role organisations play creating safe, fair, and inclusive environments.
Millennials and Gen Z who together represent around 40% of the Australian population are far more likely than earlier generations to make purchasing or investment decisions based on personal and ESG values. One of their key purchasing decisions is a job. Millennials represent the largest population in the workforce and research shows that 64% of millennials won’t take a job if a company isn’t strong on ESG.
Talent and Leadership Implications
As with any emerging practice, demand for talent outstrips supply and in the ESG space, organisations and markets are confronting a classic ‘war for talent’.
Like many search and recruitment firms, Derwent Search is moving quickly to understand and respond to the talent implications of ESG for their clients. According to Ben Derwent, Founder at Derwent Search, “we are quickly realising that there is no one-size-fits all approach to implementing ESG. Different industries, and different types of organisations are approaching it in different ways. The key is to understand the unique requirements of each client”
In a tight labour market creativity in sourcing and recruiting talent is key and according to Derwent, “what we do know is that companies need to be creative with their sourcing and recruitment strategies. This is an opportunity to look for people who may not always have a deep portfolio of experience across all areas of ESG but bring a good mix of skills and attributes that will set them up for success’”
So, what are those skills and attributes?
A passion for ESG is a good start and many people are attracted to the area based on a desire to have a positive impact across the various domains of ESG. In fact research and anecdotal evidence suggests that many people are prepared to move into this area even if it means sacrificing their current levels of compensation. In that context it challenges traditional notions of the war for talent based on supply and demand.
But while a passion for ESG is important it is not sufficient. There are some key capabilities and attributes that are necessary, particularly for those operating in senior ESG roles.
Some of the critical capabilities include:
Commercial Orientation – while there is inevitably a strong environmental and social responsibility element to the role, successful operators need to balance this with a strong commercial orientation. They need to understand operations, business drivers, commercial risks, and opportunities.
Influencer and Mobiliser – getting things done across the organisation is based on personal influence rather than positional power. Gaining the buy in and commitment of internal and external stakeholders will be key to mobilising individuals and groups. While data and evidence will be important, the key is understanding and integrating stakeholder views and perspectives.
Systems Thinker – There are many facets to ESG that impact many, if not all parts of the business. A strong ESG operator can see the connections within the business and broader business/market system. They have an ability to analyse and predict how decisions and actions in one area may impact another. They can also drive efficiencies within the system and effectively prioritise elements that will have the biggest impact.
Futurist and Disruptor – This is a rapidly evolving field and the blueprint for success has not yet been written. An effective ESG operator needs to see into the future and where appropriate, disrupt their own operations. They need to translate that future into key strategic imperatives and actions.
Derwent sees some similarities with previous movements such as the focus on digital over the last decade. According to Derwent, “five to seven years ago, everyone was talking about the need to build digital acumen. I suspect we will see a similar thing in the ESG space. Building ESG acumen will be a priority for many organisations”.
In the same way that digital acumen was more than an ability to implement new technologies, ESG acumen is not just about implementing ESG guidelines and frameworks, it is about having a deep understanding of how ESG principles and trends can strengthen the business today and future-proof it. It’s about consciously making decisions and taking actions right across the business that support core ESG principles.
Building the Pipeline for ESG Talent
In June 2021, PWC announced it would invest $12 billion over five years to create 100,000 new jobs aimed at helping its clients grapple with climate and diversity reporting and also in artificial intelligence. It also announced a plan to increase training for partners and staff in ESG in areas such as climate risk and supply chains and creating an ESG academy. Other consulting firms are placing a similar focus on building ESG capability. In February this year, EY announced that it is paying for its 312,000 staff to take an MA in sustainability as part of wider efforts to help retain and attract staff.
Building the pipeline for ESG talent will ultimately be a mix of build, buy and borrow. There are several emerging considerations as companies mobilise their people efforts around ESG.
In a competitive talent market, there will be strong demand for talent. Opportunities for new roles and higher compensation levels will be tempting for many.
However, compensation is not the only driver. If companies don’t demonstrate a true commitment to ESG, talent will not hang around.
For many external candidates reporting lines will be a measure of the company’s commitment to ESG and the value they place on ESG talent.
The pathways into this field are still relatively new so organisations will need to get creative with development options and partner with bodies to grow existing and future talent. For example, EY has partnered with the Hult International Business School to deliver the Master program.
ESG will ultimately touch every part of the business, and everyone will need a common understanding of what it is, why it is important and how it impacts their area/role.
Like any significant movement there is always a question mark over whether the momentum is real or fad. However, given the dramatic societal shifts the world has witnessed over the last few years, it would be reasonable to conclude that we are in the early stages of a major and profound change across markets and organisations. With that in mind, companies need to approach this as a major transformation effort. According to Derwent, “assuming the commitment is there, success will depend on the ability of companies to shift their culture, build the capability, and mobilise the necessary capital and resources behind their ESG efforts”.
Mark Busine