ESG. Simplified.

Yesterday I was on an awesome panel with colleagues from JP Morgan and Kimberly Clark to discuss ESG in the context of the #NorthAmericanWay. We are all gathered here in Mexico City for the US Mexico Foundation’s Inaugural North Capital Forum.

For many, the concept of ESG is mind numbing, and in my experience C-suite executives and board members can often tense up when discussing the issues surrounding ESG because it is quite involved. My goal on the panel was to simplify the ESG concepts and process for the audience.

Here are a few of my high-level themes that I surfaced yesterday with some additional context around them:

1.  ESG is not a new concept. While ESG may seem new and unconventional, there has been a consistent effort for many decades to insert accountability in the investment process. The modern mechanics of ESG are rooted in the founding of the Sustainable Investment Industry Association in 1984 and the modern ESG effort gained traction with the investor community in 2006 when the UN Principles for Responsible Investment were launched.

2. ESG is about taking responsibility for positive and negative externalities. At DevryBV we approach ESG from the perspective of taking responsibility for positive and negative externalities created by your business. We all learn about externalities in our basic economics courses. We discover that things like “tragedy of the commons” result in the need to legislate and regulate society in a manner that creates certain incentives and behaviors to protect societal goods. ESG creates an opportunity for executives to take an expansive view on their business and on the “who owns the problem” question (e.g., clean air, clean water (rivers, who owns the ocean health?), labor conditions, production waste, etc). ESG provides guardrails and a framework for assessment and accountability.

3. Let’s not complicate ESG. We tend to get bogged down and overwhelmed by all the work that must go into defining metrics, reporting, etc. At DevryBV, we advise leaders to back up and simplify the concept. Before being bogged down my the details, ask yourselves a simple question at the leadership level. What role does our business play in society? What do we need to be accountable for? And let’s start right there.

4. Activists, The Needy, and The Ostriches. I described to the audience how we think about customer segmentation at DevryBV. We categorize clients into three categories: 

• Activists (those companies leading in the ESG space); 

• The Needy (this is where the bulk of the opportunity sits because there are many companies that need to implement ESG, but they rightly need help on where to begin); and

• The Ostriches (this got a chuckle from the audience because I described that there are a lot of businesses that bury their heads in the sand hoping the entire ESG pressure simply goes away. These clients will come to us through crisis, and I will welcome them with open arms. Although, we would rather work with companies ahead of time to avoid the crisis in the first place.)

5. Simply start where you are. Acknowledging that ESG is a journey takes the stress out of the process and opens executives to thinking about what is possible. What can we do to make a difference? At DevryBV our brand expression is “It’s Possible.” By unlocking the possibility mindset within the company, all kinds of new ideas and innovations being to surface and, new revenue streams are unlocked!

6. ESG results in organizational disruption. When getting in under the hood of the company on ESG, inevitably the leadership realizes that change is required. And, in my experience it’s not just moving boxes around. The change required to do ESG well gets to reorienting the budgetary process, addressing incentives such as LTIs and bonus structures, changing cultural practices that require collaboration, and the like. 

7. ESG is not a short-term investment play; it’s a “Systems Invest” play. When a company is able to take a more expansive view of the externalities created by the business and of the broader social and environmental challenges in the business ecosystem, and expand that view over a longer time continuum, making business decisions in the “here-and-now” becomes more about investing in permanent solutions that actually solve the environmental and social problems. Taking a systems invest approach mitigates the risk of misallocated capital and “greenwashing,” which is simply pushing out an ESG commitment all covered in glitzy marketing and backed by impressive communications. Stakeholders see through the “greenwashing.”

8. North America has an opportunity to lead on an integrated, trilateral ESG approach. At the North Capital Form, we call this the #NorthAmericanWay. Across Canada, the US and Mexico, we are suboptimizing our competitiveness because we are not working as industry, government, and civil society on integrated approaches to clean energy, food security and regenerative agriculture, infrastructure, human capital development, education, and the list goes on. I used the example of the Midwest Carbon Express that would cut impact my home state of Minnesota. It is a suboptimal solution to our regional energy needs that also suboptimizes the regional agricultural production capacity for the long term. More on MCE in later articles since I used it to make a point on the need to collaborate on integrated solutions.

9. The Humanverse™ requires cross-industry collaboration on ESG. Several weeks ago, when I was attending a WEF Young Global Leader Summit, I coined a term for the audience called #TheHumanverse. It was in response to a presentation on the Metaverse where I was struck by the amount of capital flowing into building out the virtual world that we all supposed to be living in. I had a bad reaction to the misallocation of capital while we have so many crises of the day (hunger, starvation, natural disasters) that are not being capitalized properly by business and government. Yesterday at the forum, I resurfaced my concept (I am writing a book on TheHumanverse right now btw) in the context of a question that was asked in the session. A member of the audience asked about whether ESG is actually slowing down progress on issues such as climate change. My response was that ESG supports the progress, BUT because companies are not working on cross-industry solutions to our biggest issues in TheHumanverse such as the global food crisis, the siloed ESG reports of any one company do not hold the entire global business community accountable the issues. The example I used is: let’s not leave the food crisis to the food companies. We need all companies to focus on collaborative investment strategies to end hunger, for example. 

I will end it here. I learned so much from my other colleagues on the panel. Let us not get bogged down by the ESG-haters. Really, all the criticism is allowing those Ostriches to keep their heads buried in the sand. The global standards will converge at some point in the future. For now, companies can lead themselves toward greater impact and accountability.

At DevryBV we deploy our trademarked Integrated Sustainability Framework® to support companies of all sizes, globally on ESG by helping them Anticipate. Build. Communicate. and Lead.