09 Feb

ESG is being shunned by some, but don’t give up on the idea just yet…

ESG, which stands for environmental, social and governance, refers to standards that socially conscious investors use to screen investments.

There’s been a recent shift in market sentiment regarding ESG because investors are wary of exposures around greenwashing, and the scrutiny that regulators, market commentators and other stakeholders apply to ESG practices more broadly. For example, in December Reuters reported Florida pulling $2 billion in assets managed by BlackRock Inc because it opposed the asset manager’s ESG policies.

In a recent article by the BBC called “How ‘ESG’ came to mean everything and nothing”, a London-based ESG consultant comments: “There’s actually no surprise that you have big investors and others pulling away from bundling these three [terms] together”.

While we agree businesses need to perform, it is worth noting that ESG, done well, is a powerful brand attractor for employees and candidates. Perhaps, rather than considering ESG a risk liability, a better approach is to think of these initiatives as ‘sustainable development’, which will meet today’s needs without compromising future needs. We think there are three things that can help harness the value of sustainability development in a way that will appeal to all stakeholders.

Don’t take your eye off performance

In some ways, the ESG backlash is being fuelled by a perception that corporate energy is going into ESG initiatives rather than core business, creating a negative impact on the company’s results.

Strong leadership and high performing teams that are nailing core business are more likely to gain licence for resources dedicated to achieving sustainability goals.

Remember the “G” and “S” are must haves 

Meeting all regulatory and legislative requirements through effective governance ought to be a given for every company. Successful companies will naturally already invest in “G”, whether considering ESG or not.

Similarly, the way people are treated always has been, and always will be, one of the core success factors for any company. Investing and improving in that should be a priority for executive teams.

While the social component of ESG isn’t regulated outside of OHS and IR law, it can make a significant difference to business results because of its positive impact on engagement and productivity. So, despite the lack of a regulatory or legislative ‘stick’, the “S” remains a critical business success driver.

Get ready for the “E” becoming part of the “G”

Many companies are awaiting Australia’s environmental commitments at the UN COP29, which will be held later this year. Depending on the targets and whether they flow down to a corporate level, it is quite possible environmental factors will become governance issues.

What is certain is that Australia has a strong push towards clean energy and renewables. For companies in that sector, this demand is leading to rapid investment and growth, as well as the need to quickly develop more mature business models.

How JOST&Co can help

To help companies harness the value of sustainable development, we can help with leadership and team development, employer brand, cultural change and organisational design initiatives.
We can also talk to business leaders about the expected areas of industry-specific change, including renewables, that institutional capacity will need to address.