#ESGP: How boards can balance #ESG and Profit (P)


There’s no money in ethics. If there were everyone would be at it. There’d be no corporate scandals because you could make more money from being good.

And of course, there are lots of studies which show the long term connection between behaving with a good social purpose and sustainability. That’s no surprise.

The problem is that there’s a danger that business will repeat the CSR trend error and try to make a business case for good behaviour. It’s dangerous. Look at how long CSR lasted.

But ESG is here to stay. Why?

First, the language is plain. It’s not management speak. Environment, society and governance are three simple words which don’t need explaining. A sure test of management speak is that you need to explain at length what the words mean in practice.

Second, “big business” and, the media which writes about it, sees the writing on the wall: Larry Fink, the 181 signatories at The Business Roundtable, HBR, the Financial Times etc. are all mainlining on “purpose”. And they’re serious. Milton Friedman and his primacy of shareholder value are, as we say back in Ireland, totally fecked.

Third, with a political landscape dominated by extreme left and right behaviour, the vacuum in the centre will be filled by those, especially young adults, who are happy to make less money provided ESG is honoured.

So sooner or later, companies will have to confront the fact that ESG costs money; that to make genuinely ESG-based decisions in the boardroom you may have to make less profit, at least in the short-term and if you don’t you may find that society, which grants your board its licence to trade, may revoke it.

So how should a board make, what I call ESGP decisions, i.e. those that prioritise the need to protect the environment, society and governance ahead of profit and to maximise profit, as it must, within that framework? It’s not hard:

Step 1 What decision would you take as a board if you ignored ESG completely? How much money would you make? If you need help with this, have a look at some of the critical decisions that led to the big corporate scandals and collapses over the last 20 years, and to the 2008 Global Financial Crash. Think about a few less well-known questionable decisions that your board has taken.

Step 2 What decision would you take as a board if you took ESG issues fully into account and had them fully costed, and how would that decision impact your P&L, in the short-term?

Step 3 What decision would your board take if it, sort of, cherrypicked the least expensive bits of ESG? Sound familiar? This, I suspect, is commonplace.

Those are the steps. But in, truth, they are options or choices for your board. And these choices may cause conflict. How prepared is your board to resolve these? Whose personality will dominate these decisions? Who will remain silent? Who will speak up? Will ESG have a Devil’s Advocate in your board room?

It’s a new way of thinking and behaving. Boards will have to unlearn old ways to learn new ones.

If your board pays men and women equally as it should, and some don’t, it hits your P&L. It’s an ESG issue. That decision or, say, a decision not to dump chemicals in your local river does not require a business case. But many feel they do and the ESG business case bandwagon is rolling.

It will soon be stopped in its tracks by reality. The direction of travel is that society is coming to expect boards to take the hit where ever it must honour ESG or it may revoke its license to trade as quickly as it is starting to abandon dear old Milton.

ESG costs. Rightly. There’s no such thing as a free ESG.

Ciarán Fenton

I will be speaking on this subject at a session to be chaired by Sally Hughes, CEO of IACCM at The IACCM Americas Conference 2019 in Phoenix, AZ, on Monday 4th. November 2019.

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