Business cannot brush off ESG as a mere PR challenge

The writer is author of ‘How to Be a Better Leader’ and is a visiting professor at Bayes Business School, City, University of London

Marks and Spencer is hiring. It needs a new ESG communications manager.

The British retailer is looking for a “stellar candidate who combines substantial knowledge of issues such as plastics, human rights, climate change and diversity and inclusion”. You would have to be pretty stellar to have substantial knowledge of all those subjects.

The job holder will be responsible for “crafting and co-ordinating our Environmental, Social and Governance communications strategy”, which will “engage and equip our colleagues, deliver our regulatory reporting requirements as well as build belief in our ESG and wider transformation narrative”. It is a big job, but somebody has to do it.

ESG is everywhere. You cannot discuss a business’s operations or prospects without the initials ESG cropping up. Some commentators are troubled by this. “There is a steady supply of people who don’t care about finance but who end up working in financial services in ESG roles,” wrote Bloomberg’s Matt Levine in March. But this was restrained in comparison to Elon Musk’s recent comment that “corporate ESG is the devil incarnate”.

Sceptical (and seasoned) observers of business know to be on alert when another Three Letter Acronym (TLA) achieves widespread popularity. Management By Objectives (MBO), Total Quality Management (TQM), Business Process Re-Engineering (BPR), Corporate Social Responsibility (CSR): each of these ideas has for a time dominated the agenda.

All started out with worthwhile analysis at their heart. But in the curious world of management thinking, what begins as an interesting thought often gets either distorted or diluted as its uptake increases. The more you see and hear a familiar TLA in circulation, the more likely the idea is becoming the latest failed fad.

It is possible we have reached peak ESG. As reported in the FT’s Moral Money newsletter recently, a whistleblower formerly employed by Deutsche Bank’s DWS asset management arm denounced ESG as “meaningless”. “We’ve been massively successful in mobilising [trillions of dollars] into ESG strategies broadly,” Desiree Fixler said. “What have we accomplished? I’d say very little.”

Consider the practicalities, and paradoxes: housebuilders such as Taylor Wimpey and Persimmon are still installing gas boilers in new houses, even though in three years’ time they will be banned in newbuilds in the UK. How robust are investors, including ESG funds, being with housebuilders on this issue, asks Mark Goyder, an experienced business commentator.

Then there is the paradox of advisers that have no single house view on investments and voting decisions. Moral Money also reported that ISS, a proxy adviser, was on both sides of an investor vote at Bank of America last week. Shareholders were asked to consider requiring the bank to introduce tougher policies on financing fossil fuel investments.

ISS advised “socially responsible” investors that stricter lending rules would create “stronger alignment between the company’s net zero goals and its policies and actions” and should therefore be supported. But its advice for general shareholders was to reject the motion, as they could be happy with “the company’s current commitments to low-carbon economy and expected goal-setting”.

So what was the responsible course of action for shareholders: save the planet, or save the annual bonus? It is not always easy being an investor, ESG or otherwise. (Only 11 per cent of shareholders supported the motion.)

Of course, business leaders cannot brush off ESG concerns as a mere PR challenge. JBS, the Brazilian meatpacking company, has experienced a rise in its carbon emissions of more than 50 per cent in the past five years, according to research. This could lead to disinvestment by a range of funds, as well as being dropped as a supplier to big supermarket groups. This is where ESG concerns can really bite.

The challenge for managers is engaging employees in these questions. Lofty ESG goals can be “pretty meaningless for staff”, says Richard Collins, co-founder of CSR Accreditation, a training organisation. ESG measures, which could be gamed, are imposed top-down, whereas genuine CSR activity is bottom-up, and involves people. Collins recommends aligning social responsibility with what your business actually does. It follows that making grand claims about your ethical purpose while conducting business as usual can be doubly disheartening.

If ESG is everywhere or part of everything, what in the end is it? As ever, Occam’s razor can help: if your business is doing something you would be embarrassed to tell your friends and family about, you probably should not be doing it. The threat of public embarrassment should be enough to encourage most business leaders to make better choices.