We saw in our previous study on company purpose (link) that only a minority of companies associate their purpose statement with appropriate governance, indicators, and actions.
More broadly, it is difficult for investors, analysts, and the public to measure the full social and environmental impact of a company. They lack reliable data to position themselves on these ecological and social issues.
On this topic, former Danone CEO Emmanuel Faber says:
"Many investors say they lack sustainability information reliable enough to make their decisions on these climate and social matters, while acknowledging their growing importance"
An opinion shared by Olivia Grégoire, current French Secretary of State for Social Economy:
“A company can only control what it can measure accurately, and it has everything to gain from more transparency (…) [We must] allow all companies to better disclose CSR information, make the indicators well known, and better evaluate their [environmental and social] transition”
But which tools are available to business leaders? How relevant are they?
The ESG/CSR reporting landscape is hard to navigate
A multitude of initiatives have emerged and are still emerging at national, regional, and international levels. The purpose and scope of the initiatives as well as the interdependencies between them are complex.
To simplify it, we could say the following:
- Reference frameworks set the ESG/CSR expectations and priorities (ex: UN SDG; World Bank Performance Standards)
- Reporting systems determine which metrics to track, and how to track them (ex: GRI, IRIS+)
- Labels & rating systems allow companies to assess their environmental and social performance against their peers and assert their commitment to the market (ex: B-Corp, Responsibility Europe); in some cases, they use the assessment metrics provided by 3rd party reporting systems (ex: GRI)
- Audit & risk frameworks are designed for investors to assess ESG/CSR risks of potential investment targets (ex: Sustainalytics; ISR)
The reality is far more complex and fragmented. Many reporting systems or labels do not explicitly rely on reference frameworks. “B-Corp” for instance (one of the most widely accepted CSR labels on the market), relies on its own framework and metrics. In the meantime, new metrics and frameworks are being created. “Impact.gouv” in France or the European taxonomy aim at improving accuracy of reporting, but at the same time add to the complexity of the reporting landscape. In addition to this, corporate law of some jurisdictions (ex: the PACTE law in France) offers companies the option to include positive impact on society as part of its legally defined goals in addition to profit.
Fragmentation and opacity create a risk of “Greenwashing”
The ESG/CSR landscape is very fragmented, and no one tool or framework has been universally adopted. This lack of standardization creates opacity, which makes it difficult for a consumer or an investor to understand the true reasons behind a company’s decision to follow one particular initiative or framework. This fragmentation also impedes accurate benchmarks between companies, as well as fact checking and data-based assessment of sustainability ambitions.
On paper, third party ESG/CSR tools are meant to prevent greenwashing and social washing. But no standard is exempt from controversies. Even the most robust tools can be manipulated. In an article called “B Corp certification won’t guarantee companies really care for people, planet and profit”, Michael O’Reagan (Senior Lecturer at Bournemouth University) says:
“My research into one of the earliest certified B Corps, CouchSurfing.com, shows how certification can be used to pacify angry consumers and attract investors. Certified companies can simply walk away if they feel being a B Corp no longer suits their profit-making aims or strategy, or if it threatens short-term shareholder profitability. The online marketplace Etsy is one that walked away, while others dropped certification after being bought out by larger companies that had other plans"
Another prominent example of a company using ESG/CSR to pacify angry stakeholders is the French nursing homes company Orpea. The company found itself in the middle of a scandal involving the alleged mistreatment of elderly people because of managerial pressure to deliver financial returns. As a result of this scandal, the share price of Orpea and its peers plummeted.
Source: Google Finance
The company was quick to announce its transition to the status of “Entreprise à Mission” (the status in French corporate law giving companies the option to include positive impact on society as part of its legally defined goals in addition to profit). Will the adoption of this legal status be sufficient to counteract the deeply inappropriate practices evidenced by the scandal? A drastic change of managerial culture will also be required to put the well-being of its residents above profitability targets.
Sustainability tools and metrics are a necessity, but they are insufficient
Business leaders have access to a wide range of tools to strengthen their commitment towards societal issues and to report metrics to their stakeholders. But is a well-polished purpose or ESG/CSR label useful when a company already has a strong “de facto” purpose? ESG/CSR labels and metrics help to assert and measure the societal impact of a business, but the best indicator remains the conviction of business leaders as well as the core purpose of the business to achieve this impact.
At ShARE, we believe in the relevance of ESG/CSR indicators. Some are a “must”, such as CO2 footprint, Health & Safety indicators, etc. Although necessary, they are not the “holy grail” of a company’s societal transformation. ESG/CSR labels cannot replace the top management’s true willingness to achieve Do Well Do Good. These beliefs and convictions must cascade down to all levels of the organisation and become part of the company ethos.
What we promote at ShARE is a business culture balancing “Do Well” (performance) and “Do Good” (social and environmental impact). Business leaders must embody and foster this balance, for which we have developed a simple stress-test. We call it “the grandmother perspective”: treat your employees, your customers, and society in general as you would treat your grandmother. It is as simple as that, and in the case of Orpea, it can be applied quite literally.
In doing so, you will not be chasing metrics, but you will put humans at the center of doing business. This is what being a true business leader is all about, and this is what your company needs to thrive in today’s world.