How to escape ESG compliance’s ‘Groundhog Day’

As the sustainability industry grapples with interpreting and standardising ESG definitions, indicators, reporting frameworks and methodologies, the risk is that it perpetuates a time loop, or ‘Groundhog Day’, of collective self-delusion.

We face a crisis that demands a response. This crisis is framed by the breakdown of economic, institutional and societal structures that were thought to be impenetrable. Previous structures for doing business have been pounded by ever more powerful externalities. The clue to the significance of this is in the word ‘externalities’. They are outside our current thinking and financial models. They are outside the constructs that we have built for safety and security. They are the essential ingredients of any system and they have been neglected.

Fixing systems

The engineering design of the post­war model is flawed. We have assumed that we can deploy infinite models for growth and prosperity in a linear model while on a foundation of finite resources. This has been known about in scientific communities and at the most senior levels of industry and government for several decades. However, the warnings have been ignored or the consequences have been so unimaginable that it has garnered a culture of denial. Worse still, many leaders have drawn their followers into a fantasy realm of ‘Groundhog Day’ ESG initiatives. This is all to buy time. Time required to maximise the collection of wealth in the storehouses of the few.

We need to set ESG ‘Groundhog Day’ against the potential towards a living world that supports human flourishing. For us to do this, we need to coalesce our supply chain around our global net-zero targets. We need less transactional and more longer-term relationships with our clients. We need to get our product back at the end of its life, retrieve it and recycle/reuse its materials. A shift like this will disrupt supply chains as we start to source our raw material from customers. Transparency across the system will mean that brands become much more vulnerable in parts of the value chain where they currently have little visibility.

Businesses will also need to be highly adaptable to keep up with customers who typically adapt their buying choices faster than corporations can respond.

Escaping ESG paralysis

Business leaders can overcome ESG paralysis to bring in a new era of sustainable performance by reforming the company’s assets and behaviours.

• Suppliers: your suppliers are almost certainly global, as well as being culturally and ethnically diverse. With increased transparency, you may uncover abusive or unfair labour practice and human rights violations. There may be ethical dilemmas that require the north star guidance system and wisdom.
• Customers: Your customers are operating outside your control zone. Technology has given your customers access to competitors and platforms on which they can declare their opinion on your service, product or brand with little or no control from yourselves. Democratisation of consumerism has arrived.
• Loyalty over leverage: Navigating successfully in this zone will require a different relationship where you need to build trust, respect and loyalty with your stakeholders, rather than seeking to exploit your enhanced leverage to maximise profit with little regard for social or environmental impact.
• Connecting with stakeholders: Your communications department needs to know what authenticity looks and feels like, as well as how ESG claims will stand up to scrutiny.
• Manufacturing: Your product development team needs to design products with recovery and reuse in mind. The assembly team will need to source much of their raw material from the components of existing products that need to be retrieved from customers.
• Finance: Capital will be deployed by demonstrating that you are making the required progress in your transition and the meeting of milestone ESG targets. Investments will have to be made in reverse logistics. Sales teams will have to be incentivised differently and enterprise management systems and inventories will have to be reconstructed for new business models.
• Technology: To move from a linear, forward-focused business model to creating a Total Value System using AI and digital tools that will help us operate effectively in complexity.

Stepping out of the ‘Groundhog Day’ of ESG initiatives demands a response from leadership and within that response, we all have choices. We can hunker down, tick a few boxes, buy some time and shore up our pension pot. Or, we can become leaders for our time: courageous, humble, heroic and adventurous.