Purpose, Sustainability and ESG
The wheels on the ESG debate have been spinning since the FT Moral Money summit in London on “How to Turn Talk into Action to hit ESG targets”, which RISE partners Katarina Wallin Bureau and Charles Perry attended.
To ensure that this debate is not too much of a distraction from the positive role that business can play in the world, it is important to distinguish ESG from other key concepts.
Purpose is the ultimate expression of why a company is in business. As an example, IKEA: “To create a better everyday life for the many people.” Purpose is intrinsically at the core of business strategy.
Sustainability, according to the original UN definition of sustainable development, is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. In other words, economic growth with a regenerative environmental and social impact. A sustainability strategy sets out how a company strives to live its purpose and embed sustainability into operations as well as the values, attitudes and behaviours of its people. To continue the IKEA example: “creating a better everyday life” is not only about providing affordable furniture, but doing so while becoming circular and climate positive by 2030 and creating a positive social impact for everyone across the IKEA value chain.
And finally – ESG. Leading investment solutions provider MSCI defines ESG Investing as “the consideration of environmental, social and governance factors alongside financial factors in the investment decision-making process.” It assesses a company’s management of financially relevant ESG risks and opportunities. Unfortunately, there isn’t a commonly accepted standard for this, which is why ESG is currently creating so much confusion – and accusations of greenwashing – as companies report this activity using a variety of different base lines and methodologies.
Given the sizeable representation of the financial and investment community at the Moral Money summit, it is perhaps not surprising that a large part of the debate focused on measurement – and the lack of it – in ESG. This is a distraction from the substance that we should be concerned with, which is the need to evolve capitalism and shift valuation towards a multi-stakeholder perspective. It is in a business’ self-interest to serve a larger audience than its shareholders, creating longer-term stakeholder value because this has a positive impact on trust, reputation, risk management, innovation, employee engagement and – as a result – on its financial performance.
Being purpose-led and embedding sustainability is a strategic management approach that deserves attention beyond the current obsession with ESG.