How can an organization design an ESG strategy that works for people, planet and profit?
As the UN General Assembly draws to a close, our experts and practitioners tell us how to shape an ESG strategy that delivers results while advancing both purpose and profit.
Michael Froman,Vice Chairman and President, Strategic Growth of Mastercard
Over the last few years, there has been increased focus both on the need to address environmental, social and governance issues — and the challenge doing so. The expectations of the private sector from investors, customers, consumers and stakeholders have increased as organizations look for ways to engage that are authentic to their company, their work and their values.
At Mastercard, we’ve been focused on building a more sustainable and inclusive digital economy for more than a decade. It’s where our financial inclusion work is rooted.
As a company, we thrive when economies thrive, and economies thrive when they are sustainable and inclusive. Of course, these environmental and social imperatives are increasingly intertwined. For that reason, our financial inclusion work has expanded to address how we can leverage our network, technology, and expertise to solution against broader issues around the environment.
Mastercard has embedded ESG goals to support profits, people, and the planet into the core of our company and culture – that includes how we operate, what we measure, and how we reward employees. We now link everyone’s compensation to specific ESG metrics: financial inclusion, net zero emissions and decarbonization, and gender pay equity. We took this step because we believe that with shared accountability, we can better connect the ‘why’ of our purpose to the ‘what’ of our fundamental business strategy to ensure we deliver long-term growth for our shareholders, build trust with stakeholders, and contribute to a more equitable and prosperous world.
There is no definitive answer to this. We are all working through it in real time. And these efforts require collaboration and partnership. That’s our approach on ESG, as well as business.
Claus Aagaard, Chief Financial Officer of Mars
A successful ESG or sustainability strategy isn’t a bolt-on to business operations. At Mars, we firmly believe that sustainability must be built into business strategy, decision making, key metrics and shareholder objectives. This will be critical in order to deliver a meaningful and generational impact.
It's becoming increasingly appreciated among the broader business and NGO community that the planet and people elements of sustainability are mutually dependent, and as such a focus on one at the exclusion of the other will be fruitless. But balancing profit and sustainability progress remains a more thorny debate.
However, this needn’t be a tension. As CFO at Mars, I’m focused on what I call holistic value creation, driven by sustainable growth and positive societal impact. This approach allows us to balance short-term profit with long-term value while meaningfully transforming our business. At a practical level, this means factoring in considerations such as carbon impact in all decision-making, however big or small.
As an example, one of Mars' core principles is mutuality - creating mutual benefits that endure. A business can only be successful in the long term if it enables all of its partners - including the communities and environment in which it operates - to thrive. As a purpose-led business, we hold ourselves accountable for delivering across multi-dimensional measures, not just financial performance.
Performance without purpose is meaningless, and purpose without performance isn’t possible. "
Joanna Elliott, Global Director of Conservation, Cross-Cutting Programmes Fauna & Flora International
ESG has so far missed the opportunity to drive real world positive impact, at scale. But let’s not write it off just yet. Organisations can and must design their ESG strategies to go beyond simply managing exposure to risk or compliance, but catalyse real impact in order to underpin long term value creation and prosperity.
Our collective drive for short term profit has created the zero-sum game for our planet. One of our few remaining chances is to put nature and climate at the heart of our economic decision making, to specifically de-couple degradation of the planet, from growth, profit and prosperity.
This is already being achieved, albeit at nowhere near the scale required, through investment in renewable energy, conservation agriculture and soil carbon enhancement, and the protection of ecosystems.
Currently, much of the ‘E’ in ESG is focussed on climate only, and it is essential that companies also focus on biodiversity, recognising nature-climate linkages in order to optimise mitigation and build resilience.
ESG will prepare us for the necessary paradigm shift, driven by increasing external pressures forced upon us as a result of short-term profits. The economy can handle a reset, the planet cannot.
We need to improve our understanding of how and why we measure impact, and work in cross-cutting partnerships in order to do so, with those who know how to achieve and measure impact at grassroots.
Finally, we need to build purpose into our business models alongside profit, an approach that will shift our perception of what long term prosperity really looks like.
Rebeca Minguela, Founder & CEO of Clarity AI
At Clarity AI, we’d take a step back and make sure that when you refer to “ESG” and profits, people and planet, you’ve got the right framework in mind. ESG frameworks do not aim to measure impact in the world.
We must not conflate “ESG,” which is an investment risk framework that measures the effect of the outside world on an asset, and “impact,” the effect of an asset on the outside world. We must not make that error and treat ESG and impact as the same, as the latter could become collateral damage.
The net result of greater cynicism around the concept of investing for good is ultimately less financing for the companies that are creating a better world. In designing a strategy that is good for profits, people and the planet, companies will have to go beyond using only ESG. As always, first you must decide what outcome you want to achieve, and then you must line up the tools to get there.
When defining that outcome, get specific about what aligns to the values of your company – are you pushing for sustainability in terms of eliminating poverty? Decreasing ocean acidification? Increasing the level of education in the world? Saving wildlife in our forests? Promoting diversity in our workforce? There is a long list about what you could be trying to accomplish. Leveraging advanced technology and market expertise can also allow you to customize industry consensus frameworks to better fit how your organization can walk its path to contribute to achieving a more sustainable world.
Halla Tómasdóttir, CEO & Chief Change Catalyst of The B Team
A once-in-a-century pandemic. A global energy crisis, particularly acute in Europe. Unprecedented climate events in nearly every corner of the world. These are ESG issues, whether we call them that or not.
Risk awareness and resilience are the name of the game for today's business leaders. If you want to prosper, ask yourself: Is my business prepared to weather the storms to come? Am I able to effectively communicate our sustainability performance to shareholders and stakeholders?
Corporate leaders and investors increasingly recognize the business imperative of sustainability — and risk awareness and resilience are linchpins of a holistic approach to sustainability. Yet companies report on their sustainability performance using a variety of different metrics and reporting standards, leading to confusion among stakeholders. The lack of consistent, reliable reporting prevents investors from understanding the financial, reputational and systemic risks of different companies.
We need to bring clarity, consistency and comparability to sustainability reporting. The good news: the International Sustainability Standards Board (ISSB) is developing a comprehensive global baseline of sustainability disclosures so that reporting is comparable across industries and geographies — a common language enabling investors to assess companies’ sustainability risks and opportunities.
I urge business leaders to engage formally with the ISSB as it develops its reporting standards. Commit your companies to voluntary adoption. Publicly make your voices heard, signaling to governments, investors and the media that the sustainability disclosures of the ISSB will be the common language of resilience for the capital markets.
Dr. Arlo Brady, CEO freuds Chairman of Blue Marine Foundation
In the business world today ESG is a commonplace term that is unfortunately very often misunderstood, misused, and, therefore, misinterpreted. As a result, it has become controversial, and that controversy is clouding the waters; making it very difficult for anyone to get to grips with the reality of whether a firm has an ESG strategy that’s focused on action and impact, or one that is focused on simply catching the attention of ESG investors or other key stakeholders.
So, the first and most important thing to consider is the organizational state of mind and level of genuine commitment to sustainability. Is this an organization that has noticed (not exactly difficult!) that ESG is the latest business buzz word and has decided to adopt the language and imagery of sustainability to appear modern and relevant? Or is this a firm that has looked at the state of the world and realised that they can contribute to getting us all on track to meet the SDGs by 2030?
If the latter, then hopefully there will also be a realization that the list of challenges set out in the Global Goals should also be seen as colossal business opportunities. I believe that solving humanities greatest challenges, especially climate change, will turn out to be the greatest business opportunities of this decade. Leaning into that win-win, and transparently demonstrating progress along the journey is how a company can design an ESG strategy that has built in mutuality for all stakeholders.