Society has become increasingly polarised. As civil liberties are lost, society's belief in a zero-sum game – you win, I lose – increases, and these beliefs spill over into attitudes towards business.
This polarisation has significant knock-on effects, including views on Environmental, Social, and Governance (ESG) factors.
Considering the mixed messages we receive about ESG (do companies genuinely care, or is it just box-ticking?), it is not surprising that many are cynical. This scepticism is compounded by the wide range of issues that ESG covers – from water management to board diversity. Furthermore, the responsibility for ESG adherence lies with leaders, making it seem like a distant problem for many of us.
With unrelatable ESG goals, it is difficult to create a sense of purpose around ESG, leading to an ESG backlash. Part of this backlash also arises from the belief that ESG and profits are mutually exclusive. Adhering to ESG regulations can be expensive and, in the short term, may not seem worthwhile, especially if there are targets to meet.
In his excellent book "Grow the Pie," based on thorough academic research, Alex Edmans, a professor at London Business School, examines companies that centre their purpose around stakeholders as well as financial performance, including the impacts of ESG investing. The jury is still out on whether companies that incorporate ESG perform better financially – partly because of the lack of unified measurements of ESG. Generally, companies that are purposeful about ESG and not just box-ticking tend to provide better financial returns. However, this could be because these companies, being more purposeful, are better managed.
Edmans found that investing in companies listed in Fortune's 100 Great Places to Work each January yielded a 3.5% higher return than the market.
Therefore, shifting the focus from ESG to employee welfare may be a more sustainable solution for the organization. After all, employees with a sense of purpose are more likely to drive significant change than leaders merely ticking boxes.
Read the full article @ Forbes.com
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