The PEE of ESG — point, evidence, and explain

“If you can’t explain it simply, you don’t understand it well enough,” said a certain well-known physicist who answered to the name of Albert Einstein. Maybe that is the problem with ESG, or rather the problem with how it is presented. ESG is not a complicated concept; its rationale is simple enough, yet it gets mired in controversy.

Aedin O’Leary, who advises company boards on their ESG strategy, says: “ESG was never intended as a marketing label, even though in many ways it has become one.”

Speaking at the recent DTE Dublin conference, she said that instead, ESG is simply “a framework or a lens for assessing risks and opportunities, not an outcome or an end in its own right.”

And maybe that is the key point that ESG critics overlook — it is a means for assessing risk and opportunity. Is there anything controversial in such an objective? Probably not. Maybe we just need to put much greater emphasis on ESG as a framework for assessing risk.

PEE

Aedin also talks about PEE — point, evidence and explain. As a rule, acronyms should be avoided, especially in communications. But let’s just add one more KIS — keep it simple. And that’s it, no more acronyms here — except ESG, of course. We are stuck with that acronym.

But let’s return to point, evidence and explain. This is how Aedin put it:

ESG communication: What’s Your Point?

The point is so simple but gets overlooked. Aedin says: “The point is that there’s a strong business case for integrating ESG.”

Trawl through Twitter, and over and over again, you find the same trope: that ESG is somehow anti-capitalism, too woke, a left-leaning concept that sees money-making as the devil’s motive. Yet, the point of ESG is its business case. If there is a business case for integrating a certain concept, in this case, ESG, how can that be anti-capitalist?

The evidence 

Then there is the evidence; evidence, for example, that companies which apply ESG tend to see superior share price performance. 

But what is the evidence to support ESG?

Aedin divides the ESG rationale into three distinct categories:

1. There is ESG practice you have to follow because rules and regulations dictate it. The evidence then is the regulatory landscape.
2. There is potential commercial value in applying ESG. And this commercial value can take multiple forms. For example, at one level, a company that applies ESG may be more popular in the recruitment market. At another level, a company that empathises sustainability, not just internally but across the supply chain, may find it has a more robust business model that is less vulnerable to disruption.
3. Finally, there is the doing good rationale — do ESG because it is right. But that takes us into greenwashing, etcetera.

Explain

Then there is the explanation bit which puts the above in context. So, by adhering to rules and applying good governance, you reduce risk.

ESG practice can lead to new opportunities, for example revealing new markets and revenue streams.

The wash

But you must “beware of the wash,” says Aedin, who defines the wash as “any kind of report or other communication which overstates your organisation’s credentials and does not have the evidence or experience to back it up.”

And there is more than one wash:

• Green-washing —the form of wash we are most familiar with, dressing up policies with no significant environmental value as green.
• Rainbow-washing — outwardly supportive of the LGBTQI+ community, using the Pride colours, but less actual evidence within your organisation to show you are inclusive.
• Goal washing, where you contrive your ESG or sustainability reporting to show how you tick the box across different SDGs without meaningful backup.
• Governance washing: claiming to be ‘doing ESG for years’ when you have only really been doing the governance bit, with E & S only a recent afterthought.
• Competence washing: making all sorts of new sustainability roles and appointments, sometimes overstating skills and qualifications and suggesting this ticks the ESG box / now makes the business “highly skilled and expert”. 

The champion on the board

But ESG can only be applied successfully across an organisation if it has the board’s support. As Aedin put it: “there is no point appointing people into sustainability positions and then not giving them the scope to deliver…without the support of the board and an ESG champion; there is no point.” 

She adds: “The aim must be to get to a stage when ESG and sustainability isn’t a standalone board item, but something that is integrated into every single business decision.”