ESG should be at the heart of business as usual

According to Friedman’s old dictum that a company’s sole responsibility is to make a profit for shareholders, it would be rational that the only political commitment expected of leaders should be that which will improve the business. However, this is no longer the case and the ESMT research highlights how we increasingly want leaders to be politically and socially engaged.

The researchers surveyed 40 leaders of large companies from across Europe. An overwhelming 77.5% of them say leaders should take a stand on political issues, with 62.5% of them saying they are willing to express themselves socio-politically. The main motivation for this was to make a positive contribution to society, but there was also a strong belief that speaking out helped express corporate values.

“ESG follows something like the model of diversity, which at first was largely a virtue signal to make it look like organizations really care,” says Tomas Chamorro-Premuzik of Columbia University. “But then people quickly realized that it was bullshit, especially with more information being made available on sites like Glassdoor, and so it created a real external incentive to be more ethical.”

Values-based leadership

The scale of change was highlighted by the recent business values ​​survey conducted by the University of Oxford, which showed that values ​​such as empathy, passion and courage are at the fore. Researchers highlight how clear values ​​help organizations meet the challenges facing most of the world today.

As researchers at Washington University in St. Louis demonstrate, the alignment between our own values ​​and those of our employer is increasingly a deal breaker in attracting and retaining talent, with employees seeing no difference between an organization’s ability to make good business and good social decisions .

“There is a tendency to view sustainability as a cost driver or reporting obligation, but the reality is that sustainability represents a huge opportunity for business and economic growth,” explains Julie Lynn Teigland, managing partner of EY EMEIA. “Creating the talent pool necessary for transformation is essential to creating long-term value.”

Although this sense of moral duty to respond to the various problems facing the world is increasingly evident, the feeling remains that few have really taken to heart the fact that their very survival depends on how effective they are at doing so. It is increasingly apparent that corporate success requires a healthy natural environment, an educated workforce, peaceful coexistence between nations, and consumers with money to spend.

A spirit of cooperation

In other words, there is no future for companies if the land itself has no future. This fundamental truth is at the heart of Canon’s culture kosei, which can best be described as a spirit of cooperation where we all work together for the common good. It aims to create harmonious and long-term relationships with customers, suppliers, governments, the natural environment and even competitors.

“It’s easy to build a CSR program where you invest a little money on the side and then carry on with the rest of your business as normal, but we realized that to really support society, you can’t just give money,” says Yuichi Ishizuka, president and CEO at Canon EMEA. “To do this in a sustainable way, it has to be something that runs through everything we do, whether it’s treating employees, suppliers, the environment and the wider community well, it has to be a core part of the business, as usual.”

The kyosei process can be thought of as a pyramid, with the strength of each layer dependent on the layers that precede it. The bottom layer is economic survival, as the organization must be in good financial shape to do good for society.

Local partnerships

This then forms the basis of long-term and sustainable relationships with employees within the company and other stakeholders outside the company. Everywhere there is a strong desire to treat people with respect and thereby engender a reciprocal sense of loyalty.

“This was evident during the pandemic when the lockdown started, as we had a lot of really strong business partners and we worked hard with them to try to make sure they were as supported as possible,” continues Ishizuka. “This can be done by extending payment times or many other areas, but the key is to think long-term and see these partners as a key part of the business.”

This extends to active participants in each of the regions in which they operate. INSEAD research clearly illustrates the benefits of this, as it shows that when companies operate through local partners, they are prevented from building relationships with local stakeholders and building a solid reputation in the community.

This is important because many multinational companies use local partners to manage their relationship with the host government, build goodwill with local people, and provide training and other benefits.

Global reach

The global nature of the firm allows it to be an activist on the international stage, as it not only operates in over 220 countries and regions, but collaborates with companies and governments when doing so.

This global reach allows the company to address various imbalances it encounters. For example, income imbalances can be solved by creating productive capacity in developing countries, environmental imbalances can be solved by finding new ways to reduce air and water pollution or by reducing energy consumption.

While many companies continue to look at CSR, ESG, etc. as external to its core business, there are signs that this is changing. In his recent book Purpose and Profit: How Business Can Uplift the WorldHarvard Business School’s George Seraphim explains how a new generation of leaders is adamant that this is not a nice-to-have.

It outlines several key ways companies can pursue “purpose plus profit,” including:

  1. Create a new model or market. When you truly embrace social responsibility, you can often create new markets, such as the various neo-banks that have incorporated sustainability from day one.
  2. Transform the business. If you have an existing business, it’s not too late to turn things around, as Danish energy company Ørsted did when it rebranded from DONG when it focused on wind and renewable energy.
  3. Focus on operational efficiency. For example, the chemical giant Dow is focusing its efforts on green construction and industrial safety.
  4. Recognize added value. Utility company NextEra Energy — originally Florida Power and Light — has increasingly focused on generating energy from renewable sources, while utility company AES has turned to solar development and battery storage.

It’s clear that more companies appreciate the importance the world places on them as good corporate citizens, but all too often they resort to lip service in response. It is by no means easy to be truly influential, especially in difficult times. Only by truly embedding this into the very essence of the organization will the best results be achieved.

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