Bumpy Slopes for ESG Tracking
Is ESG a fad?
Or is ESG a broad concept that is still evolving?
The challenge lies in metrics: finding definitive and standardized measurements for companies trying to do the right thing in the face of climate change, an energy transition, and numerous social issues.
The media coverage coming out of the Milken Global Conference in Los Angeles and World Economic Forum in Davos would suggest that ESG tracking remains a slippery slope.
Each conference featured CEOs speaking out on important topics, as employees and other stakeholders are expecting, and in some cases, demanding, of corporate leaders.
But there is growing media commentary that the unstandardized nature of ESG rankings is leading to confusion, or at worse, cynicism over how corporations are being estimated.
From recent coverage in the Financial Times: "The term ESG is less than two decades old, but it may already be coming to the end of its useful life."
But as trust in governments, the media and other institutions declines, businesses have an even more compelling role to fill the void. That’s certainly the view of most members of the Page Society, the community of Chief Communications Officers representing the world's top companies, agencies and educational institutions.
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“The world expects more of CEOs today than shareholder returns,’ reads the Page Society’s 'CCO as Pacesetter' report. “For leading CCOs, measurable societal progress is an integral part of competitive differentiation, corporate reputation and brand value.”
Yet, how best to measure that progress?
“ESG is a slippery concept, without widely accepted definitions, criteria and metrics,” says the Wall Street Journal.
And to quote the FT: “The problem is that ESG — as a whole, and each of the E, S and G individually — is an unholy mess of subjective assessments based on patchy arbitrary data that allows anyone to say they are ESG compliant.”
In Davos, as at Milken, companies whose CCOs are members of Page were in abundance. Inflation and a war in Europe overshadowed much of the Davos conversation, particularly on climate.
ESG tracking aside, here are 5 of my takeaways from both conferences:
Purpose-driven companies will continue to balance profit and the demand by employees and other stakeholders to act in accordance with their obligations to society. But finding a set of standards against which they are consistently measured will remain a big lift (yeah, pardon the pun.)
Without doubt there needs to be standardized ESG reporting across all industries (that is appropriate for each,) Brian, but I suggest two other important and interrelated considerations. First, greater stakeholder activism should certainly hold businesses (and governments) to account but, secondly, there needs to be a much better understanding among global citizens (and pension funds and fund managers) of the interpretation of ESG standards and how they are applied to 'green' money. Clearly, as communicators, we're falling short. Who's to say whether fossil fuel companies are more evil - I mean less environmentally and socially responsible - than soda manufacturers or agribusinesses, especially beef farming, or EV manufacturers? That is a whole new debate.
Good perspective Brian. Thanks for sharing.
Great article Brian Lott. It is true, ESG metrics aside, the energy transition is underway. However fast or slow, there is no going back; companies are setting targets and changing their business models
Brian, This is very timely and useful. If I may, there are ways to track ESG activities and initiatives. governments and NGOs have been doing it since Official Development Assistance (ODA) was invented and NGO programs had to report the way they spend donor assistance funding. The OECD, keepers of the ODA flame are a great resource. The issue is that it is a laborious process and not only about choosing metrics (as you well know). Developing theories of change where recipients of ESG activities (such as developing communities) are consulted as to what it is they need is the first step. Measuring whether the ESG initiative actually delivered on what those stakeholders requested is one way to start measuring ESG in a deeper way. Thank you for taking a stand on this important issue.
Thanks for sharing your observations. What the E, the S and the G indeed have in common is it’s rather recent arrival on leader’s dashboard or radar and its non standardized measurement. The public reduces ESG to the green elements around the E, while businesses and leaders mainly stumble over bad G. And the unavoidable consequences of the war, the inflation, recession and migration will force the S back into the center. Hence it is time to break up ESG and pay full attention to each critical area in its own rights and with the dedicated expertise and tools that are needed.