Memo to the chair: Unhappy about ticking those ESG boxes? Then lead from the front

Chair of the board

3 min read

Mark Goyder is a senior advisor to the Board Intelligence Think Tank. He’s the founder of Tomorrow’s Company and co-author with Ong Boon Hwee of Entrusted: Stewardship for Responsible Wealth Creation, published by World Scientific in 2020.

I experienced a nasty discordant sound last month on hearing two pieces of news.

First I learned from some of the world’s leading scientists who formed The Earth Commission that: “Human activity has pushed the world into the danger zone in seven out of eight newly demarcated indicators of planetary safety and justice. Our planet faces growing crises of water availability, nutrient loading, ecosystem maintenance and aerosol pollution. These pose threats to the stability of life-support systems and worsen social equality.”

Around the same time, I learned that the remuneration of water company bosses had on average increased by 20% in a year when it was also revealed that water companies were not monitoring 90% of their sewage spills.

Of course, the state of the rivers and bathing waters is not all attributable to water companies. But if we stand back from the detail, consider what those news items together tell us about our companies’ leadership, governance, and sensitivities to the needs of ordinary citizens.

This should alarm every company chair and board member.

As I argued earlier this month, ESG considerations seem to be more and more on the board agenda. So why are we not seeing more evidence that these influences are transforming the way the board looks at the world and the place of their company in it?

In a recent article, veteran stewardship champion Guy Jubb, previously Global Head of Governance and Stewardship at Standard Life Investments, argues that there is so much ESG pressure that boards are confused. He cited a Tulchan study from last year in which company chairs complained that stewardship concerns were being reduced to “box-ticking”.

That suggests that those chairs do not see the ESG agenda as their own but as something to which their company must decide its reaction. That doesn’t feel like leadership. Leaders would stop accepting that the agenda will be set by others and start individually — or collaboratively — setting the pace themselves. Finding their own unique ways of internalising the externalities.

How does the chair start every board meeting? How does the company secretary organise the agenda? How does the CFO prioritise what is measured and reported? Do all three reflect the company’s sense of what is and will become imperative in terms of our failing ecosystem services? Or will they carry on with the same old agenda?

We have grown used to saying that there is a climate emergency and to setting targets around net zero. Yet the world’s leading scientists are now telling us that not only is there a climate emergency; we are breaching safe boundaries for water, soil, air, nutrition, and food in ways that threaten human safety and well-being.

Shouldn’t company boards now be on a war footing and put consideration of these threats at the top of the agenda?

Some companies have had to cope with war emergencies and these have forced them to put societal needs front and centre. In 2016, a World Economic Forum report showed that in countries as wide-ranging as Afghanistan, Bangladesh, Burkina Faso, Nigeria, and Uganda, there are positive examples of big, medium, and small enterprises making a difference in war-torn communities.

“These pioneer firms are not only making a return on their investment, but they are seeking to build stronger communities.”

The suggested actions and priorities for companies included the following, all of which might usefully inform the thinking of boards everywhere:

    • Work to help reinforce stable public systems rather than circumvent them. That would mean not lobbying against taxes, or attempting to fight regulatory measures.
    • Maximize financial inclusion for vulnerable people.
    • Prioritise the local private sector as an engine of economic activity and growth.
    • Help smaller producers access global supply chains.
    • Develop jobs and apprenticeships for young people.
    • Improve the quality of service delivery to marginal areas.

Many of the implications of the WEF report focus on the importance of devolution and supporting local economies, and the advantages for businesses therefore in devolving decision-making down to those who are front line with customers. Doing so makes the awareness and treatment of vulnerable people all the more simple. It would rule out forcing customers to have prepayment meters; encourage better accessibility and care in call centres when vulnerable customers wish to speak to them to query a bill after the death of a partner. It would extend to working with partners to build local talent pools, or create ways to support those who struggle to pay their bills.

These initiatives are within the gift of the company.

A focus on stewardship by investors was never intended to undermine that kind of company leadership. Whenever a chair or his or her board feels that they are being drawn into box-ticking, it is worth remembering William Blake’s “I must create a system or be enslaved by another man’s.”

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