Rules and responsibilities: advancing the ESG agenda

When new legislative or governance pressures emerge or evolve, it can often raise the question: whose responsibility is it? That is exactly what is happening with ESG monitoring and reporting, and its far-reaching implications for the way business is done.

Change will have to happen, and that change will have to be led. 

The current situation sees, as law experts Linden Partners point out, ESG moving from the world of marketing to the reality of hard law. And its rise in importance will continue without delay – especially in Germany. We can expect plenty of change as the consolidation of currently uncoordinated laws and regulations takes place at some speed.

In other words, we are yet to see the full impact of ESG legislation.

The main focus of ESG will continue to be the climate, and its protection, with increasing focus on the protection of human rights, particularly in supply chains, whilst species protection is likely to be a rising concern of ESG.

Public risks and potential lawsuits

The risks around ESG and related issues are very public, as lawsuits come to courts, especially against those companies with a high carbon impact, for example, oil and gas companies. There is also a rising tide of lawsuits concerning greenwashing - consumer groups are calling companies out for making misleading or false environmental claims, with huge potential damage to reputations.

"Besides setting up the suitable structures, like sustainability advisory boards, or setting up special ESG committees of the supervisory board, there is a lot of work to do in integrating ESG into daily activities", says Kai Böttcher, Associate Partner at Odgers Berndtson Germany.

The majority of major companies have addressed many , if not all, of the following:

• Declaring a net zero target. This should include a strategic plan to reduce current GHG emissions.
• Promoting a robust and thorough diversity and inclusion programme
• Reviewing supply chains to uncover factors that represent ESG risks
• Examining current and prospective investment programme to uncover any impacts on ESG
• Integrating ESG goals into relevant executive compensation packages

Whose job is it?

A quick read of that list reveals that there are a number of leadership positions affected by those actions.

Of course, the CFO is well to fore, since financial data and ESG reporting are intrinsically linked. It also follows that, as mandatory reporting grows and grows , the CFO’s role in taking an overall lead on ESG reporting will increase too.

Also, the CFO is in the right place to support investment in the organization’s sustainability impact programmes, as good intentions are turned into solid actions.

Which brings us to the CFO’s closest leadership colleague, the CEO. Most agree that a close working relationship between these two is the ideal, most effective situation. The CEO’s role in this is to set the broader sustainability vision, whilst taking overall accountability for the direction, and driving change from the very top, setting the tone and expectations. Without the CEO taking a visible lead, no organization will meet its obligations in a way that maximizes the opportunities for the business.

"Major changes and challenges like the implementation of ESG requirements inside the organizations need the “voice” of the CEO", says Gabriele Stahl, Partner at Odgers Berndtson Germany.

Understanding emerging issues and best practice

For day-to-day matters, the CSO comes into their own, with in-depth knowledge of emerging issues and best practice.  The CSO will be focused on how to engage, communicate and embed the strategy throughout the organization, and with any relevant external stakeholders.

A good CSO will make the leadership team aware of emerging standards, new legislative requirements and market trends. They will also spend time supporting functional heads in working together and making sure there is no confusion about the part each one is to play in delivering the ESG strategy.

Employees can play a major role in embedding ESG matters into an organization’s operations and culture. If they’re in customer-facing roles, employees can play a role as advocates for sustainability beyond company boundaries. And its eyes-and-ears for any malpractice or potential risk.

With this in mind, marrying your company’s sustainability and people agenda becomes an important weapon, and the influence of the CHRO is clear in this.

What makes a good leader in the sustainability context?

As we observed in a previous article, when it comes to sustainability, emotional intelligence  certainly comes into its own. This is because the necessary transformation will take place more constructively when emotional intelligence is used for influence, inspiration, motivation and building relationships with followers.

And, whatever the industry, reaching carbon zero and meeting external requirements, will require a transformation in the way business is done and organizations are led.

The leaders driving towards those goals have to be drivers for positive change.

They need to be able to lead in such a way that inspires people to think and behave in responsible ways for sustainability.

They must have forward-thinking plans and visions for sustaining the planet within which they operate, as well as social responsibility towards its people.

To discuss your career, or talent requirements in ESG, or other areas of responsibility, please don’t hesitate to get in touch. We’ll be keen to hear from you.