ESG critics need to understand that woke capitalism is driven by supply and demand

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Amid geopolitical and macroeconomic turbulence, three years after the Business Roundtables’ historic declaration of corporate purpose, stakeholder capitalism and its focus on environmental, social and governance (ESG) issues are under attack. Critics of woke capitalism now argue that it is naïve to focus heavily on ESG in times of economic uncertainty.

In my experience as the CEO of a company that works with 700,000 corporate directors and executives in over 130 countries, these critics miss the mark and fail to recognize the powerful push of customers, employees and investors to make organizations more than just financial matters. targets. However, these discussions underscore the urgent need to deliver on the promise of stakeholder capitalism, as discussions about climate change, inequality and conducting ethical business relationships are not going away.

Those who focus exclusively on short-term financial returns are sacrificing two things that are clearly in the interests of the very shareholders they stand for: resilience and sustainability. Worse still, they are doing so at a time of unprecedented dynamic risk. Economic, social and political changes are taking place at a record pace. Structural, climatic, technological and geopolitical changes are accelerating in ways never seen before. Ignoring these existential risks in pursuit of this quarter’s profits, as advised by short-term capitalists, is a fool’s errand.

The assailants of woke capitalism and alleged government excesses miss the point that market players are the source of ESG attention. Yes, regulators play a role, but the real demand for action comes from groups that we capitalists should believe in and heed: investors, consumers and employees. For example, institutional investor support for ESG shareholder proposals has led to a wave of change in their adoption in recent years. A recent study shows that between 2006 and 2015, there were only four successful resolutions at Fortune 250 companies, compared to 41 over the past five years.

Finally, those who argue that it’s time to separate E from S&G ignore how companies most effectively change their behavior. Yes, we cannot rely on private sector actors alone to save the planet, but the necessary reduction in corporate carbon use will not happen if it is not directly linked to both people and to governance.

It makes no sense to abandon ESG because standards and metrics are lacking. Rather, we must correct them.

Fortunately, most leaders and board members I interact with understand that while stakeholder capitalism and ESG may be flawed, they are here to stay.

The focus is on how to make ESG a real engagement and maintain momentum despite economic headwinds.

In today’s dynamic risk environment, more than 70% of risk and compliance professionals surveyed by Diligent and Censuswide believed that their companies would soon face increased pressure to act urgently on risk. ‘ESG. Changing laws and regulations and social responsibility vulnerabilities are ranked alongside supply chain issues, cyberattacks and market volatility as top concerns.

US companies lag their counterparts in Europe, North America, Japan and Australia in environmental and social performance, according to a study of more than 5,000 public companies by the Diligent Institute and the Esade Center for Corporate Governance in Spain.

Only successful implementation can calm the skeptics of stakeholder capitalism and vindicate its proponents. There is no substitute for real impact and three practical steps can help answer the persistent call from investors, consumers and employees to take a long-term view:

Collect the data. We are well on our way to the easy part of ESG engagements. Unless and until organizations can effectively bring together the disparate sources of critical ESG data, they cannot effectively define, communicate, implement, track, report and evaluate ESG best practices, net zero or any other commitment will remain only that. Embrace diversity (in a broad sense). According to the Diligent Institute and Esade Center study, board diversity has the highest positive correlation with companies’ environmental and social scores. Diversity of gender, age, nationality and professional experience among board members improves companies’ scores on economic and social issues. There’s every reason to believe that the value of diversity extends far beyond boardrooms to C-suites and beyond. Focus on the task. Companies need to focus on implementing ESG at the executive level to make it a reality. In the Diligent Institute and Esade Center study, 12% of companies with dedicated ESG committees on their board performed better than their counterparts where ESG was managed in other committees or at the full board level. Beyond the board of directors, the implementation of ESG is most effective when there is an accountable person within the organization. That’s why I recently hired a new direct report to do just that at Diligent.

Rather than pursuing an ESG debate that will satisfy no one and solve no problem on its own, the time for concrete action has come.

Brian Stafford is the CEO of Diligent Corporation.

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