In 2020, the UN announced a Decade of Action. Ten years to harness our collective global power to rescue the planet, fix poverty and create a more peaceful world.
These kinds of initiatives are the backdrop for the swift and strong shift in expectations on businesses and industry to play a bigger and more positive role in the community.
Progress on solving the world’s problems might be progressing slowly, but the pressure is on organisations to demonstrate to shareholders, community activists and governments, how they are contributing.
This has meant the focus on organisations ‘sustainability’ performance - how they manage environmental, social, and governance (ESG) issues is significant.
While ESG standards certainly benefit our environment, the world and the people in it, ESG goes beyond a feel-good approach to doing the right thing in the context of business management.
It challenges entire industries and the future viability of organisations who fail to broaden their focus from financial performance to a revised model of success with sustainability at its core.
And it’s challenging Boards and Executive Teams to adequately plan and demonstrate what they’ve done.
“Organisations can no longer see themselves as removed or separate from the broader environmental and societal landscape in which they operate,” says Churchill Director Mr David Lynch.
“While in the past, CSR and socially responsible investments were seen to compromise financial success, today the understanding is there that not getting ESG right is fast way to ensure financial disaster.”
Reactive over planned
“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” Jack Welch
The famous Welch quote relates to an organisation’s responsiveness and ability to adapt to fast moving changes is as prescient in the context of sustainability wave hitting businesses.
The pressure has mounted very quickly around ESG. Funders and institutional investors are taking a firm stance on sustainable, responsible and impact investing. In response to this, ESG ratings agencies have emerged and are assessing organisations performance against a wide range of criteria that extend far beyond the previous reporting requirements.
“This risk we are now seeing is that many organisations are reflexively reacting to these external pressures, rather than strategically answering them,” says Mr Lynch.
“Given the scrutiny is being applied in this space, this reactiveness is a risk – get it wrong and reputations will be damaged.”
Driving improvements in sustainability requires a proactive approach and clear focus and commitment.
Strategy is the answer.
Creating a strategic framework
At Churchill, we start by creating strategic clarity, so both sustainability risks and opportunities are embedded not just into risk management frameworks but into the organisations strategic plan and operating model.
We do this initially through a robust materiality assessment to apply a sustainability lens to the organisation and begin to understand what aspects are relevant.
As part of this process, Churchill have distilled the ESG domains into four key areas of focus for how organisations:
- Manage their environmental impact
- Enable their workforce
- Build trust across all stakeholders
- Manage their supply chain
“One of the challenges we found is that ESG was causing confusion for clients in respect to what sits within the S and G components,” says Mr Lynch.
“These are pretty simple definitions that often align to existing internal structures within the organisation and enable clients to quickly think through the key factors under each.”
Once Churchill has identified an organisation’s essential ESG criteria, we run a maturity assessment, to determine how they are tracking in relation to comparative organisations.
Given the importance of this initial assessment, Churchill have worked with their partner ArcBlue – a leading Australian Supply Chain consultancy – to develop a materiality and maturity solution that allows companies to quickly understand their positioning and relative priorities.
Aligning internal to external
Then we begin the process of integrating the standards into the client’s long-term strategy and business planning.
“It’s going to look different for every organisation. For example, one of our core clients wants to set the sustainability benchmark within the sector, so we’re working with them daily to establish their ESG function to support that intent,” says Mr Lynch.
“Another is focusing on the modern slavery requirements, so we are looking at tools to help them better track and assess how they are aligning with the regulations, but also the wider expectations around that topic.
For ESG structures to work, it’s critical that an organisation’s internal viewpoint aligns with its external viewpoint, when establishing ESG functions, says Mr Lynch.
“While corporate social responsibility can help you achieve a positive external view of the organisation, it will not have long-term success, in fact could be highly dangerous to the organisations reputation, if your internal view does not match and support that.”
Part of that is ensuring that internal teams are on board and are placing as much value on the ESG aspects of the business. This means that as well as baking ESG into the external reporting framework, it needs to be integrated into the internal KPI’s as well.
The long term game
Although the Covid-19 pandemic tempered long term strategic thinking with near term operational challenges it hasn’t ultimately changed the pace or direction of the sustainability movement sweeping through global economies.
Despite all the frameworks and rhetoric, leading practice guidelines and myriad of thought leadership being published on the topic, sustainability in its truest form is still best defined in the dictionary “able to continue over a period of time”.
Those organisations that embrace the changes and challenges of this decade of action from the energy transition to technology disruption (and everything in between) will become the organisations we want to invest in, want to buy from and want our children to work for.
The opportunity to be that organisation starts now.