Aside from COVID, a key topic of discussion this year has focused on environment, society, and governance (ESG) goals. As Sophie Bidwell notes, “what CEO would not want to be focusing on sustainability and disruption” right now. COP26 was a key focus for this discussion, focusing on the climate emergency. Beyond the COP, a quick search of Google trends reveals how quickly ESG has risen to the top of the agenda in the last five years. Much of this effort has focused on developing an agreed-upon set of frameworks for reporting companies' progress - from Science-Based Targets and the TCDF to discussions on materiality, measurement, and monitoring of ESG has quickly become the central focus of companies and consultancies alike.
Much of the discussion to date has struck me as emphasising measurement and committing to a set of agreed-upon objectives. I understand the significance of public commitment and the premise that what is not measured does not change. What has struck me is the lack of emphasis on the "organisational transformation" required to achieve these goals.
While I’ve seen some interesting blogs (for example, this one by Anna Skylakaki, Katie Simm, Vanessa Bingle of Alpha consulting), I’ve generally been surprised by the lack of thinking on what organisational transformation is required and how it is implemented. If, as McKinsey notes, ESG is central to creating value, then putting the ESG transformation at the heart of business strategy needs to move beyond measuring targets and towards organisational transformation - by which I mean changing how organisations and individuals think and make decisions?
In transformation projects, Peter Druker's famous statement that "culture eats strategy for breakfast" has been proven repeatedly. If we are serious about ESG, we must prioritise organisational cultures to build organisations capable of implementing ESG principles rather than simply reporting against a framework. Indeed, companies such as Patagonia and Unilever, which are held up as strong examples of effective ESG, emphasise changing their organisational culture.
Coming from a background in international development focused on organisational change, what strikes me about this ESG agenda is the assumption that setting targets, even if they are set from the top, will change how the organisation operates. This, in my experience, is only very rarely the case. In this case, the concept of isomorphic mimicry for government change applies. In common parlance, isomorphic mimicry could be seen as greenwashing. It's the idea that an organisation appears to be doing what we expect it to do - reporting on key targets and speaking in a way we understand - but beneath the surface, the organisation is still doing what it's always done. My takeaway from the world of organisational change, particularly in the complex world of international development, is that target setting and organisational change must go hand in hand.
What needs to change in how we approach the ESG agenda to make it stick?
Focus beyond the operating environment: Change is brought about not by the targets and measures set but by changes in the way an organisation operates, to which the standards respond. As a starting point for any ESG process, the focus should shift away from understanding the operating environment (the regulatory and political environment). The focus must shift beyond this to include staff priorities (especially since by 2025, 75% of the workforce will be millennials and Gen X, who are more concerned with the company's mission) and the larger stakeholder environment. By taking the time to understand your stakeholders and their motivations, what they want, and how to engage them, you will be better prepared to undertake organisational transformation. More importantly, you will generate support for the changes you may implement.
Map out your journey: Don't expect everything to change overnight or that a single strategy and reporting framework will completely transform how you operate. Be open and honest about this with your organisation and other stakeholders. The more you can plan the change journey, the easier the cultural shift will be. That means learning from effective change management and planning for quick wins that will have an immediate impact on your supply chain. Be strategic about which goals you commit to, when you commit to them, and how you use this to generate momentum. Simultaneously, recognise the need to embed this change in your culture and consider creating a burning platform to generate momentum.
Communicate, monitor and report: Don't expect everything to change overnight or that a single strategy and reporting framework will completely transform how you operate. Be open and honest about this with your organisation and other stakeholders. The more you can plan the change journey, the easier the cultural shift will be. That means learning from effective change management and planning for quick wins that will have an immediate impact on your supply chain. Be strategic about which goals you commit to, when you commit to them, and how you use this to generate momentum. Simultaneously, recognise the need to embed this change in your culture and consider creating a burning platform to generate momentum. Perhaps most importantly, don’t over commit. Set stretch objectives but be realistic about how quickly your business can change and be honest about that.
By 2022, the emphasis must shift from establishing ESG frameworks to understanding how businesses can transform their organisational culture, systems, and processes to truly operate in alignment with ESG objectives.