THE GREENING OF GLOBAL BUSINESS

Why corporates need a tougher resolve – Kiran Dhanapala

Sustainability, and environmental, social and governance (ESG) principles, are different concepts. The former is broader and focusses on business’ role in society, how it creates value by managing and enhancing impacts, and affects many stakeholders.

ESG is mainly for the screening of businesses as investments by understanding how such entities affect the environment and society, and manages risks and issues. And the disastrous results of human behaviour are teaching us to be humble.

If there is one thing that sustainability professionals need, it’s resolve – to outlast the deniers, harness anger and channel it into productive action, bargain hard for more than incremental public policy and refuse to succumb to depression amidst unprecedented challenges.

This resolve is needed to deal with the expanding expectations of the role of business in society. These demands on the business community worsened last year and will be aggravated this year.

Businesses are being asked to take positions on various issues – be it diversity (gender, racial and LGBTQ+ equality), democracy and good governance, food security or the greening of economies.

And yet, corporate resolve also generated a backlash in 2022. For example, The Walt Disney Company took on the US state of Florida after it passed the ‘Don’t Say Gay’ law that restricted teaching of gender and sexual orientation in elementary schools. Under pressure from staff, the CEO of Disney came out against the bill.

The Governor of Florida and the legislature targeted Disney by stripping the conglomerate of its special tax status. Florida also pulled out US$ 2 billion in assets from progressive BlackRock because of its support for ESG, climate action and shareholder capitalism.

Other states such as oil rich Texas barred state contracts with banks that are reducing investments in fossil fuel businesses or weapons manufacturers.

There’s also criticism on sustainability and ESG from a different source, but it’s part of the checks and balances needed to keep things transparent and real. Regulators, NGOs and watchdogs are calling out banks and other financial institutions on ESG screened investments that show little evidence of compliance, and raising allegations of greenwashing.

This scrutiny led to the resignation of the CEO of a Deutsche Bank subsidiary. And the lack of employee communication coherence at HSBC on climate change not being a risk to worry about caused its Head of Sus­tainable Investing to resign.

Regulators are pushing ahead and demanding better sustainability disclosure using evidence and more harmonised standards. For example, Switzerland declared that climate disclosure will be mandatory from 2024.

Younger employees who are full of resolve to do meaningful work for service providers are also forcing their ad agencies, consulting entities and so on to choose criteria that dictate the types of projects and sustainable enterprises they wish to work for.

All this scrutiny is leading to entities setting goals but not publicising or ‘green hushing’ them. This may be to avoid a possible backlash as in the Disney case or be conservative in case they are unable to meet their goals. These corporates certainly require an abundance of resolve.

A trend is defined as ‘the general direction in which a situation is changing or developing.’ In this century, there are sophisticated media metrics and technologies to track and elicit such trends. Tracking the content of external communications among the top 40 sustainability leaders in North America helps to examine topical trends.

Technology enables easy analysis and categorisation of such communications, and enables identification of what the current trends are. Trends between Europe and North America differ.

Europe has different trends to those of North America, which build momentum more quickly and are ahead of the latter. Over a four year period (2018-22) in North America, key trends included the environment, governance privacy and security, and economic performance.

In the last year or so (2021-22), the prime movers there were privacy, security, disaster preparedness, governance and climate transparency. It is important to understand the different expectations in regional trends for clients and export markets for those in Sri Lanka.

Sustainability, which is a growing trend, is good for business; and therefore, it will continue in fits and starts amidst challenges. For instance, S&P 500 companies that include ESG metrics in compensation plans rose to 70 percent last year from 57 percent in 2021 – with carbon footprint, diversity and inclusion metrics increasing the fastest.

We increasingly understand that major trends such as climate change and inequality cost all of us real money. Norms are changing and the cost of inaction is rising while the price tag for action is falling, and corporate resolve will need investment for strengthening.