…….the ESG imperative, a Social Contract or Business performance narrative?
Climate risks are on the rise globally due to an increased propensity for drought, wildfires, flood events and landslides. As such governments are increasingly prioritizing policy solutions that will support an economic transition to mitigate the impact of climate change and its effects.
The world, we acknowledge is moving faster. The earth’s exploding global population has exasperated economic development, accompanied by wealth inequality, water and food insecurity, climate change, increased pollution, resource depletion, and loss of biodiversity as human encroachment on natural ecosystems continues. These events have all led to unparalleled economic, social and environmental challenges with the COVID-19 pandemic as the latest deadly example.
Though our societies have enormous potential for adaptability, technological, societal innovation and social justice, enacting fundamental systemic changes will require shifting of thinking to embrace more inclusive, profound and deliberative approaches, common practices, policies and philosophies founded on new knowledge, skills and of good governance principles in order to make relative impacts.
As intimated by Albert Einstein, ‘we cannot solve our problems with the same thinking we used when we created them”. Therefore, countries and organizations which want to experience a turnaround in the economic fortunes ought to declare pragmatic plans to green the economic fundamentals, operations or tackle social issues and compel same for a cohesive story. Though challenging and sophisticated yet doable, organizations are required to take a true strategic and integrative approach to transforming change leading to sustainable business and planet through rethinking a new social contract.
For decades, when organizations sought to deliver positive change in the world, they often defaulted to the shareholder-driven impulses under the guise of corporate social responsibility. But as expectations for delivering serious social and environmental impact shift, organizations need to embrace a wider stakeholder-centric perspective that also establishes accountability and rigor.
That said, building a new eco-social contract is a way to give substance to the vision for Sustainable Economic Development. Much more, it will be better understood and have more traction if grounded in broad participation, dialogue and consensus building, while containing clear accountability mechanisms. The new social contract ought to reflect the realities of people’s lives and be constructed to reflect different sectors and issues of the local to national, regional and global perspectives.
A new eco-social contract must be fostered through a raft of changes to policies and institutions so that they are democratic, inclusive and promote gender and environmental justice, coupled with alternative economies and transformative social policies to bring about the needed change.
The new social contract
To begin with, there is a greater awareness that the world has seen significant disruption and change and the trend keep perpetuating. These growing trends have had its heavy toll on how businesses have sought to prioritize their mandates and operations. As already known purpose defines a company’s core reason for being, and determining what businesses are here for. Organizations now seek to define their purpose anchoring them on its Environmental, Social and Governance (ESG) priorities and impacts.
Though creating an ESG mindset in a company can take time and effort, but the new social contract requires it. The pay-off will be a motivated, value-driven workforce that feels personally invested in the organization’s success. To cite the philosopher Jean-Jacques Rousseau, he described the notion of social contract as an agreement by the people on the rules and laws by which they are governed, for the good of all society.
The core philosophy of a social contract emphasizes an implicit arrangement between citizenry, their respective societies, and legitimate government to create a healthier and safer society together. Social Contract creates a legitimate, collective governance with consent of the people which invariably informs our modern concepts of democracy.
With social contract organizations have with their stakeholders, consumers now are shifting their demands for more sustainable and ethical products. Employees are looking to work for a more purpose-driven companies that are socially and environmentally responsible. Besides, Board members and CEOs equally are recognizing the importance of social issues and their need to focus on ESG within their core business mandates. Regulators on the other hand are setting bolder ESG policy agendas and imposing tougher restrictions on businesses who fail to step up to their rising expectations.
Towards a new Social Contract, organizations are asking several thought-provoking questions about human nature, our relation to social and natural environments, how we humans have shaped and organized our societies and the impacts of the organization in the society. These questions seek to find answers to and emphasize on long-term business sustainability, the general welfare of human and nature to address our unfettered approach to unlimited economic growth, overconsumption and over-individualization.
The ESG Imperative as a performance narrative
Going in with a strategy for sustainability can be a huge boost to business performance now and in the future. Increased top-line revenue growth, improved profitability, greater innovation, new business models, greater teamwork and stronger reputation are all what every business seek to achieve. The pressure as it is, is on for organizations to get serious about sustainability and social impact strategies.
Every company, which is itself a legal creation, requires governance. Just as ESG is an inextricable part of how we do business, its individual elements are themselves intertwined. Thinking and acting on ESG as an organization in a proactive way has lately become even more pressing than before. But even as the case for a strong ESG proposition becomes more compelling, an understanding of why these criteria link to value creation is significantly more important.
Fundamentally, ESG reporting requirements are quickly shifting from voluntary to mandatory, with companies under pressure to show how they are improving people’s lives, tackling inequality, paying a living wage and contributing to the environment as well as documenting how they are mitigating negative outcomes of business.
This new norm seeks to satisfy the assurance of stakeholders that management understands the risks of exposure to climate change, poor corporate behavior and inefficient use of scarce resources and is working to make the business more resilient. The ESG compliance framework recognizes the true cost of inputs and outputs such as carbon emissions, pollution, water usage, deforestation, biodiversity damage, poor treatment of workers and disruption to communities and builds these into addressing profit, people and the planet satisfaction imperatives.
As it may be asked, does a strong ESG proposition make financial sense? The answer obviously is in the affirmative. ESG links to cash flow in great important ways as facilitating top-line growth, reducing costs, minimizing regulatory and legal interventions, increasing employee productivity and optimizing investment and capital expenditures.
Emboldening the Social Contract Agenda
Across the entire environmental, social and governance (ESG) spectrum, corporations are being exposed for carbon footprint, pollution, waste, lack of diversity and modern human slavery. Emboldening ESG reporting is for forging a new ‘social contract’.
We see a social contract emerging between businesses and their stakeholders, focused heavily on employees to meet the social challenges so apparent today. As businesses want employees to work hard and add value so in return, workers want their employers to prioritize social issues and demonstrate accountability.
Unlike the private sector, governments have typically measured their effectiveness in terms of wider population outcomes like health, education, housing, employment and poverty. As companies look beyond financial profits, and take a societal view of their purpose, the goals of government and business align more closely for economic impacts.
However, to foster and promote looks to treating workers fairly well by offering to pay a fair, living wage, investing in employees’ future training and skill-building linked to their career progression and the enhancement of policies that drive diversity, equity and inclusion.
Why an ESG Program Is Critical to the New Social Contract and for Sustainable Economic transformation
Let us think of ESG as the new way organizations ought to be run to have positive sustainability and societal impacts. This new governance protocol looks inwards to the practices and controls organizations ought to comply with, with the law and make effective and ethical decisions for the satisfaction of its stakeholders and planet protection. The ESG framework demands the creation of ethical products and encourages volunteerism.
Besides, a strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose and increase productivity overall. Admittedly, a positive social impact correlates with higher job satisfaction when companies “give back,” to the society. A strong ESG proposition can enhance investment returns by allocating capital to more promising and more sustainable opportunities.
In summary, a strong commitment to ESG isn’t just the right thing to do; it’s the smart thing to do and a new social contract highly imperative for sustainable economy.
Frank is the CEO and Strategic Partner of AQUABEV Investment and Discovery Consulting Group.
