Environmental, Social and Governance or the rather popular acronym, ‘ESG’ is receiving much deserved attention, in a race to align Climate Change and UN SDG’s with the mainstream global finance agenda. ESG is a core pivot in the responsible investing space, with Private Equity, Sovereign Wealth Funds and publicly traded funds relying on ESG information as a ‘smart beta’ or a proxy qualitative screening measure to fine tune investment decision making. The financialization of the climate change discourse has been a paradigm shift in making ESG or broadly sustainability mainstream for a fringe activity previously restricted to tree huggers.
When a thematic area has caught the eye of the banker as an ‘asset class’, and there is potential to reap a windfall; it is evident that the idea is there to stay. In the aftermath of Occupy Movement, Black Lives Matter and the Global Youth Climate Movement; ESG fits in well, in to the political economy of the day. As the financial sector, demands more ESG data- there is a booming information landscape for ESG analysis. However, responsible businesses on the ground will need more than rankings for tangible difference. Sustainability Reporting has been made mandatory at the disclosure level for each listed company in South Africa and Singapore and voluntary Sustainability Reporting as per the Global Reporting Initiative is growing by the day.
ESG as paradigm is more than data, as voices on the factory or the office floor cannot be reduced to data. One approach to resist the mere reduction of ESG as data to feed investment cycles is to listen to the voices who run businesses. When we listen to the voices who man the front desk or the counter, possibilities open up to run businesses responsibly. Companies at the shop floor level must invest in capturing narratives about sustainability rather than ticking off the audit checklist. Try and listen to third party workers who are in the canteen or the cleaner, often hidden from sight. Sustainability is a mainstay, for global businesses but the tendency to ‘green plate’ every aspect saturates any leeway for making businesses responsible, one employee or client at a time. Businesses can only become responsible if they are responding to the needs of their employees, paying them on time, covering their insurance, and make sure that they get adequate rest. This can be ensured only by the act of active listening. Suitable communication infrastructures are the need of the day beyond the customary townhall or the exit interview.
The ESG Data Management System at the asset or corporate level can work with the people management function to create opportunities to voice out opinions beyond the standardised stakeholder engagement plan and the penal grievance redressal mechanism. Existing Management Systems can be tweaked to create these nodes of listening on the ground. Start by asking, the pollution control data is adequate for the plant, but how can the health of the employee be improved by asking the equipment operator. Listening to the ground can help create bespoke indicators to capture data specific and targeted to the local context (geography and industry). Better data can create better value for the investor. The feedback loop can thus be patched by preventing accidents such as Deepwater Horizon that hollowed out the BP stock price and Rana Plaza which hit the garments sector hard.
ESG is a powerful global intellectual movement situated in conscious capitalism thinking, but if the data does not change lives on the ground, it will remain a stunted movement, meant to be more than an asset class.