Ten years ago, I realised that something was broken with the way I understood the economy. It wasn’t because I didn’t know the theory. It was that the theory stopped making sense to me.
The 17 Sustainable Development Goals came into being in January 2016, and act as the foundational lens under which to review the sustainability of our businesses, countries and entire planet.
The goal that threads my business together is 8 - Decent work and Economic growth
About 10 years ago, I realised that something was fundamentally broken with the way I understood business, governance and the economy. It wasn’t because I didn’t know the theory. It was that the theory stopped making sense to me.
I left my employers on a sabbatical year, not to travel the world (as perhaps I should have done) but to do an MBA. It was in that MBA year, that the idea behind the sustainable strategy business that I run was born.
My MBA was mostly traditional, and mostly taught the same old methods and processes, but for 3 glimmers of hope. I specialised in innovation, as this was clearly going to be the source for the radical changes the planet needs, and then I deeply sought to understand geo-politics, competitive advantage and inequality and I understood that my instincts were not wrong.
The 17 Sustainable Development Goals came into being in January 2016, and act as the foundation lenses under which to review the sustainability of our businesses, countries and entire planet.
One goal became passion in particular, although all are in some way key to my business, but this was goal Number 8, Decent work and Economic growth.
My business connects with this goal in various ways. My work with entrepreneurs is intended to support small and micro businesses to lift off with support throughout the journey.
My work with larger businesses and business executives, is to raise this heightened awareness of the deepening role that they will play in a future of sustainability and full transparency.
This podcast aims to bring these worlds together.
Let’s flip back to this topic of Decent work and Economic Growth.
Growth is something we all want and expect, it seems almost hard coded in our DNA to seek it. Yet growth is unsustainable without reviewing the way we look at the factors of production.
Some of the targets in this goal cover topics such as a focus on sectors that encourage employment opportunities such as sustainable tourism, opportunities for entrepreneurship and developing small and micro businesses through access to finance.
The pandemic has not only decimated the tourism sector and events industries, but it has also accelerated the exit from traditional jobs, retail and others, right along side a faster pace of digital transformation.
If you are over 30, you probably learned about the 4 factors of production, Land, Labour, Capital, and Enterprising spirit.
Yet here’s the thing. Labour is diminishing as a factor, while capital is accelerating, especially when it comes to technology.
Our system is set to destroy itself by destroying the middle class that fuels the global engine of growth, in addition to the fundamental real resources on which growth still depends.
Since the education of the 80s and 90s, we now understand capital in 6 more granular ways, and this may begin to shed some light on where we can go from here.
The traditional definition of capital included Finance, manufactured capital, and Intellectual capital. The modern more nuanced forms of capital include Human capital, social and relationship capital and Natural capital.
We have never asked governments or businesses to take account of the way they deplete the latter 3 forms of capital in their activities, but Environmental Social and Governance Reporting is beginning to change the playing field for businesses everywhere.
What’s inside ESG?
45% of boards reported in 2020 that ESG is a regular part of their update. This is good news, even if there’s still some way to go.
Under the environment pillar, we include topics such as climate change (Carbon emissions, Product carbon footprint, financial environmental impact, Climate change vulnerability) Natural resources (Water stress, Bio diversity and land use, Raw Material Sourcing), Pollution and Waste (Toxic emissions and waste, Packaging waste, electronic waste) Environment opportunity (Opportunities in Clean Tech, Opportunities in Green Building, Opportunities in Renewable Energy)
Under the social pillar we have human capital (Labor management, Health & Safety, Human Capital development, Supply Chain Labour standards) Product Liability (Product safety and Quality, Chemical safety, Financial product safety, Privacy and data security, Responsible investment, health & demo risk,) Stakeholder opposition (controversial sourcing), Social Opportunity (Access to communication, Access to Finance, Access to health care, Opportunities in Nutrition and Health.
Finally the Governance Pillar (Corporate Governance – Board Diversity, Executive Pay, Ownership & Accounting) and Corporate Behavior (Business Ethics, Anti Competitive Practices, Corruption and Instability Financial System Instability Tax Transparency)
Some might argue that Tax Transparency isn’t taking it far enough as an example, but these are meaty topics to get into for boards that so far have been used to having things all their own way.
ESG has been introduced to help stakeholder groups understand how ESG risks are being considered in the business strategy of the world’s largest corporations. Not providing an ESG report can harm a companys valuation, its access to capital and its reputation in the market.
ESG is a move toward having a more long-term view of a firm based on its decisions today. Its supporting the cultural shift from the quarterly short term decision making to long term impact. Paul Polman former CEO of Unilever famously didn’t hold quarterly reporting in high regard, as had his sight set on a more long term view of the company, as a long time advocate for more sustainable practices.
The rating agencies supporting these valuations include MSCI, Institutional Shareholder Services (ISS), Sustainalytics, and S&P Global are among the most prominent.
From a reporting perspective, what is material in a company that has truly adopted ESG in its way of doing businesses is Financial Materiality and Social Materiality, and they need to consider this impact across the full range of their stakeholders.
The guidance on ESG has been created by some reputable bodies, including The Sustainable Accounting Standards Board, The Carbon Disclosure Project CDP, the GRI or the Global reporting initiative and the TCFD – Task force on climate related Financial Disclosures.
90% of S&P 500 companies are publishing CSR and or ESG reporting, although the level to which this is embedded can certainly be questioned.
What these considerations reveal is that we can no longer think in silos, and a decision maker’s role cannot be discipline specific. To embed change, a new decision making framework is needed across the board, including the nature of the information and data flows within that organisation, quantitative and qualitative.
The other hot topic is around the knowledge and capability gaps that need to be addressed throughout the organisation structure; data science isn’t the only important skill.
The implications for you dear listener.
If you are a sustainable business owner and not publicly listed you are under no obligation to comply, but I would recommend knowing your numbers anyway, as this is a good exercise for us all. Learning what and how to measure our carbon footprint and social impact would be powerful.
If you are a senior executive at a FTSE or S&P 500 firm, you should familiarise yourself with the guides around ESG and circular economy, and learn ways in which you can make a difference.
How is your board and business adapting to implement and embed ESG in its way of working? I would love to know.
Connect with me on LinkedIn and tell me what you think!