Why people, not compliance, will set the course for the future of ESG and responsible business

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It’s no secret that regulatory compliance plays a significant role in driving behavioural change among big businesses. The threat of fines, reputational risk and in extreme cases, the need to halt operations, are major disincentives to most. However, when it comes to ESG – environmental, social and governance – as of today in the UK, there is no single, overarching piece of legislation or regulation to enforce its management within businesses.

Legal, financial, moral?

Most ESG policies focus on avoiding reputational risk, such as shunning “Big Oil”. Beyond this, while many industry leaders and consultants are trying to create a framework around ESG, a lot is still left to interpretation. Yet there’s clear evidence that a significant majority of companies are looking to address this area within their operations. One theory gaining traction is that of compliance culture – rather than complying for regulation’s sake, businesses are starting to be driven increasingly by their culture and values.

While this is promising, it’s of course important not to overlook the widely reported financial potential of more sustainable business.However, this undersells a significant and growing portion of brands who go beyond seeing ESG as a savvy way of improving profitability. They see the big picture: that by protecting the health of the world, they allow society to continue thriving, at home and at work. And right now it is this people focus that is driving much of the ESG consideration of business leaders.

Top down and bottom up

Taking a look at the disparity between the attitudes of leaders and employees is revealing. Studies have shown that employees value purpose-led business for bringing meaning to work and building a stronger sense of community. Meanwhile, leaders recognise the strongest benefit of purpose is supporting a reputation for growth and innovation, as well as providing a point of differentation. On paper this may appear as two sides of the same coin. While incentives for focusing on purpose may differ, the net result is largely the same. What’s good for you is good for me. A focus on purpose makes for a happier business, inside and out.

But it’s also clear that creating a fulfilled team isn’t as simple as being seen to do the right thing. The C-suite is under pressure to bridge the gap between climate aspiration, action and achievement. If they fail to understand the issues within their own organisations before introducing new initiatives, the risk of greenwashing is high. There’ve been a number of singificant influences in recent years thrusting this topic into the limelight. From the Black Lives Matter movement to the Great Resignation, the potential for ESG to not just protect people at work, but to help them thrive, is being recognised.

In the office and outside of it, people are the driving force for change, by holding corporations and executives accountable. By cancelling brands, leaving their roles, and boycotting whole nations in the pursuit of choosing “better”. The leaders who recognise the opportunity of working with – rather than fighting against – those who seek to challenge their operations stand the best chance of succeeding in the future.

The leading role of accurate data

Having established that sustainable business is influenced by more than just the bottom line, regulatory compliance and even CSR commitments to employees, the bigger challenge for many is measuring what “good” looks like. Securing and processing accurate data is absolutely critical for ensuring companies can meet their ESG goals. Putting rubbish data in will get rubbish insights out.

The challenge for the vast majority of companies is that ESG and sustainability are either brand new strategies trying to be embedded, or there simply aren’t enough resources committed. It can mean that there is a lack of know-how, people, technologies, systems, processes or – critically – culture to call upon, both in setting targets and then measuring progress towards them.

The data that companies choose to collect and the way in which they collect it, will only ever be valid if all functions and individuals are engaged and aligned. Responsibility can’t simply sit with one or two people to tick a box. Partnerships that allow businesses to leverage ESG and sustainability expertise will save a lot of time, pain, and cost: firstly in setting up the right systems and secondly in ensuring that disclosures, impacts and risks are reported in a clear format. As external ESG auditing becomes increasingly common, allowing the accuracy and quality of data to be assured, it will become easier to satisfy the demands of regulators, investors and the community at large.

Success comes from ensuring the quality of the data a business collects and holds – and then properly preparing this data for regular reporting cycles.

In conclusion

Accusations of greenwashing plague a number of higher and lower profile brands. And yet behind all this, there’s a reassuring tide of companies and executives taking a more holisitic and meaningful approach to sustainability. An upthrust which puts the simple ambition of “doing better” at the heart of how businesses are run and profits are made. Consumers are rightly to hold industry to account when it comes to how their money-making affects the world in which we all live. Leaders in turn need to listen and respond with both heads and hearts.

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Originally published on Business Reporter