The talk about ESG - the Environmental, Social and Governance factors of sustainable development - has reached a crescendo in the recent days. It was powered by Elon Musk, who tweeted “ESG is a scam” as soon as Tesla was kicked off the S&P ESG index for allegedly not being "social” enough to its employees. A second ESG-linked scandal developed in Europe, where a movie-like police raid happened in the offices of the big European investment company DWS. The investment arm of Deutsche Bank was accused of greenwashing. It faces huge fines for allegedly claiming some products were ESG compliant while they were not.
We cannot deny these events are a big blow on the ESG concept - the big idea behind incorporating in the businesses environmental, social and governance responsibility. Some went as far as to pronounce “ESG is dead”. The claims of this untimely death are highly exaggerated, though they make a catchy news headline. But ESG will suffer, and we too along with it, if it is left to be managed by people, who are defined by greed, cynicism or bureaucracy. For this not to happen, companies and states need to chose wisely who leads their ESG efforts. As for all of us, we all need to keep educating ourselves to be able to bust the ESG myths.
Myth 1: ESG is about formally ticking some boxes
What does not get measured, cannot be improved, said the guru of management Peter Drucker. This is why as with all goals the ESG ones should be S.M.A.R.T. - specific, measurable, attainable, relevant and timely. May I add also - common sense. Few odd people are excited about ticking boxes, but anyone can get excited about the idea of saving the world. And ESG is exactly about that - one step after another. The least, it helps you do a well-performing and long-lasting business.
Indeed, ESG is a leadership concept for those who know how to incorporate it well in their business models. And with the current state of the world we need it - no matter how we name it - more than ever. The shifting priorities of the world, the increasing inequality, wars, energy crises and pandemic point to the need of more sustainable and balanced social, environmental and governance models. And the new generations will punish any business that does not genuinely go that road - by not buying from them and by not working for them.
Myth 2: ESG is about Greta Thunberg scolding the older generation
The young Ms Greta is a well-managed voice of a substantial part of the next generation. What we need to do is to have a dialogue so we can face not only the green part of the ESG equation, but with equal strength also the “S” and the “G” part. Young people like Ms. Greta , who live in well developed countries , can be invited at the table of discussions that address the trade-offs between “E” and “S” in less developed countries. We need to work with young people like Ms. Greta to create the awareness that it is not enough to be green, but you also need to take care about your employees, their well-being, etc. - the “S” in the ESG. Mr. Elon Musk certainly felt the power of being assessed poorly on the “S” part and being taken off the S&P ESG index due to that.
Myth 3: Eco means inconvenient
Not using plastic bottles implies we need to carry heavy bottles every day, clean them and deal with spills in our bags; avoiding plastic straws means to accept as substitute the paper straws; not using plastic bags requires to carry an additional grocery bag every single day… There are people who look at those inconveniences and are not happy to accept they will have less comfortable life. I am also one of those people. I truly hate the paper straws! But let’s bring some common sense too - can't we just sip without a straw? And also innovations are just this - filling a niche that the market needs. So it is just a matter of time that those polluting conveniences will be replaced with new, cleaner ones.
Myth 4: Green means more expensive
Every product that is new and has not achieved economy of scale is more expensive at the beginning. Also a lot of the “green” products, like for instance a more expensive energy efficient homes, come in the long run with less expenses for electricity. The more expensive LED lights come with better durability, etc. So we really should look at the full price of a product during its lifetime and not just at its face value. And also, if you yourself are an entrepreneur in the area of green or social, you can rely on cheaper finding as many banks are providing loans for such projects at cheaper rates. So "green" and "social" money are cheeper money, who does not like that?
Myth 5: If you only offset your GHG emissions, you are good
This is a fundamentally wrong statement. Offsetting your carbon footprint is not a contemporary church (or societal) indulgence - a price you pay so you can buy a pardon for your sins. The whole purpose is to lower altogether the emissions, not to pay some form of corporate tax and continue polluting the environment with your business.
To me ESG is about reducing wastes and inefficiencies. It is a next level lean, agile and total quality control framework. It’s becoming again lean, clean and stand-out by doing well as a business while also doing good for the different stakeholders. What is ESG for you?
Victory Corners 2022, by Viktoriya V. Blazheva