ESG was mentioned in almost every session that I attended at the Mining Indaba in Cape Town earlier this month. In spite of this, I have been reflecting on why I left the conference with a feeling that not all participants have developed a strategy to adjust to prevailing ideologies. Two comments still ring loudly.
First, a CEO said that his company had been practising ESG for decades and that nothing needed to change. He said it was called "CSR".
Second, a CFO complained that the focus of attention at a new mine was the destruction of a protected habitat. Surely the company should be celebrated for creating a new replacement habitat.
Both comments are borne out of the same perspective – that a company's aim is to pursue profit as a singular objective. If people are compromised, then they will be compensated (CSR). If the environment is damaged, it can be restored (alternative habitats). Disappointingly, these executives are behind the curve of the ideological transformation that is sweeping through their investors, funders and customers – responsible capitalism requires stakeholder interests to be balanced, not overridden and compensated.
Of course, I have highlighted the opinions of just two executives. The fact that ESG was so visible across the Indaba agenda illustrates that the sector acknowledges a generational challenge. The questions that were being raised are critical to the sector finding a sustainable future.
- How do we measure ESG? Two different investors will seek performance reports against two different sets of criteria.
- We instinctively undertake many positive ESG activities, but how do we align these with funders' requirements?
- We can manage our performance, but how do we control the supply chain?
- Should we manage ESG at HQ or leave local subsidiaries to develop strategies that fit their markets?
- How can we ensure that integrating new businesses does not undermine our core ESG principles?
These questions illustrate three of the key areas of support that we are currently providing to clients: incorporating ESG standards into business strategies; operationalising ESG commitments; and evaluating the ESG performance of target businesses. I heard fewer questions related to assuring operational ESG performance and re-evaluating business plans in the context of climate change resilience and the evolving social licence to operate. These are the other two key areas of advice that clients are reaching for, and the absence of this narrative at Indaba may reflect the stage of ESG adoption within the sector.
Undoubtedly, the stage of ESG adoption varies across companies, but the sector as a whole certainly faces an enormous challenge. In many corners of Indaba, the flood of debate about ESG made ESG itself feel like that challenge. I fear some of these discussions were missing the point though. The challenge for the sector is to achieve sustainable business in a context where all stakeholders' interests are transparently balanced. With this goal in mind, surely the measurement and reporting of ESG performance becomes the solution.
ESG should become the structure and language with which to demonstrate a more balanced approach to stakeholder interests. Each company can identify its values and its approach to conflicting interests. Each company can balance profit with environmental and social impacts. Each company can ensure best governance practice and supply chain management. Each company has a strategy within its grasp to ensure the sustainability of its business.
ESG enables companies to articulate their strategy and demonstrate their performance. We should see ESG not as a challenge, but as part of the solution.
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