ESG: Comply or be cancelled – Business Daily
I hate acronyms. They are a very easy but lazy way of organisational communication in what this FPW is increasingly becoming. They are also VC, as only insiders understand them. After all IYKYK right?
And yes, I just created my own acronym for “fast paced world” and “very cliquish” which, to be honest is a faster but extremely insular way of communicating and foments the danger of leaving you, the reader, at the proverbial lights while I natter on incessantly. After all, if you know, you know, right?
Hence my wonderment at the world’s new buzzword ESG, which is being tossed about global conferences and board rooms over the last few years. ESG or environmental, social and governance concerns roll up into the concept of creating a sustainable organisation which should ideally lead into a sustainable world.
In summary, the world is done with your corporate social responsibility nonsense of handing over a dummy cheque to a school once a year while smiling at the cameras and never being seen again by that school. That game is as over as a Ghanian trying to win the 3000 metre steeplechase at the World Athletics Championships.
The world now expects your organisation to become a responsible citizen not just some of the time, but all the time. You are expected to take care of the physical environment in which your business operates as well as the human beings who exist along your entire value chain whether you’re in the manufacturing or service industries.
Corrupt and ethical business practices as well as your board diversity also make up a key focus of the governance aspects. In simple words, the world expects you corporates to show up consistently even when the cameras are not rolling. Enough of the preaching.
I recently sat through a really interesting presentation by a senior management member of the Nairobi Securities Exchange (NSE) walking the audience through how the NSE has decided to join global regulators in holding companies to ESG accounts.
Just in case you’re the only visitor in Jerusalem, in late November 2021, the NSE provided a framework for listed companies to begin reporting how they were delivering on their ESG metrics.
Dubbed the ESG Disclosures Guidance Manual, listed companies now have a comprehensive way to report about how they are showing up at the profitability dinner table.
My favourite takeaway from that NSE presentation was the term ‘green washing’. Now greenwashing is not what happens when you accidentally leave a Safaricom marketing brochure in the back pocket of your jeans, which you throw into a washing machine as dirty blue but come out as clean green.
According to Investopedia, greenwashing is the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly.
The globally infamous example is the Volkswagen emissions scandal from back in 2015. The company was caught flat-footed when it admitted that it had been cheating European and American regulators from 2006 to 2015 through fitting various vehicles with software that could detect when the car was undergoing an emissions test, alter its performance and thereby reduce the emissions level.
It turns out that the a management decision was made to begin installing the software when the company discovered that a new diesel engine that had been developed at a great expense could not meet pollution standards in first world markets.
This is where the governance aspect of ESG checks in because it became a business ethics conundrum: toss out years of development and investment in a new engine or just hide the issue via a software fix and pray no one ever finds out?
The problem with the new generation of consumers from Gen Z, and all other generational alphabets thereafter, is that they call out greenwashing faster than IEBC audits its voter register. And they tend to vote with their feet and “cancel” businesses that don’t have good sustainability practices.
You see it’s their world that we are doing business in and they are the ones who have to live and procreate in it when we old fogies die off in the next few decades.
As board members and owners of companies, we have to be alive to the fact that most of our consumers are not our age, they are younger and they are woke. They will cancel us if we do not show evidence of trying to maintain a sustainable world. IYKYK!
The writer is a corporate governance consultant and former banker