ESG: comply or be canceled
Monday 01 August 2022
I hate acronyms. They are a very simple but lazy way of organizational communication in what this FPW is becoming more and more. They are also VC, because only initiates understand them. After all IYKYK, right?
And yes, I just created my own acronym for “fast-paced” and “very clickable world” which, to be honest, is a faster but extremely insular means of communication and foments the danger of leaving you, the reader, to the proverbial lights while I chatter incessantly. After all, if you know, you know, don’t you?
Hence my wonder at the new global buzzword ESG, which has been tossed around global conferences and boardrooms over the past few years. ESG or environmental, social and governance concerns come together in the concept of creating a sustainable organization which should ideally lead to a sustainable world.
In short, the world is done with your corporate social responsibility nonsense of handing a bogus check to a school once a year while smiling for the cameras and never being seen by that school again. This match is as over as a Ghanaian attempting to win the 3000 meter steeplechase at the World Championships in Athletics.
The world now expects your organization to become a responsible citizen, not just once in a while, 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 that exist throughout your value chain, whether you are in manufacturing or services.
Corrupt and ethical business practices and the diversity of your board of directors are also key aspects of governance. Simply put, the world expects your businesses to show up regularly, even when the cameras aren’t rolling. Enough preaching.
I recently attended a very interesting presentation by a senior executive from the Nairobi Securities Exchange (NSE) explaining to the audience how the NSE decided to join global regulators in holding companies with ESG accounts.
Just in case you are the only visitor to Jerusalem, at the end of November 2021, the NSE provided a framework for listed companies to begin reporting on how they were meeting their ESG measures.
Dubbed the ESG Disclosures Guidance Manual, listed companies now have a comprehensive way to report on how they present themselves at the profitability dinner table.
My favorite dish from this NSE presentation was the term “green wash”. Now, greenwashing isn’t what happens when you accidentally leave a Safaricom marketing brochure in the back pocket of your jeans, which you throw in a washing machine dirty blue but comes out clean green.
According to Investopedia, greenwashing is the process of giving the wrong impression or providing misleading information about how a company’s products are more environmentally friendly. Greenwashing is considered an unsubstantiated claim aimed at misleading consumers into believing that a company’s products are environmentally friendly.
The globally infamous example is the 2015 Volkswagen emissions scandal. The company was caught off guard when it admitted that it misled European and US regulators from 2006 to 2015 by fitting various vehicles with a software capable of detecting when the car was undergoing an emissions test, altering its performance and thus reducing the level of emissions.
It turns out that the management decision was made to start installing the software when the company discovered that a new diesel engine that had been developed at great expense could not meet the pollution standards of the first world markets. .
This is where the governance aspect of ESG comes in as it has become a business ethics conundrum: throw away years of development and investment in a new engine or just hide the problem via a software patch. and pray no one ever finds out?
The problem with the new generation of Gen Z consumers, and every other generational alphabet after that, is that they are speaking out against greenwashing faster than the IEBC is auditing its voter registry. And they tend to vote with their feet and “cancel” companies that don’t have good sustainability practices.
You see, their world is where we do business and they are the ones who have to live there and procreate when we old morons die in the coming decades.
As board members and business owners, we need to be aware that most of our consumers are under our age, younger and woke. They will cancel us if we don’t show proof that we are trying to maintain a sustainable world. IYKYK!
The author is a corporate governance consultant and former banker