Commentary by Bob Massie
The TakeAway: Silo Thinking by Corporations, Activists, Investors, and Others Slows Progress of Sustainability
Those who have been working to advance the concept and practice of sustainability in the United States over the last decade can celebrate some solid progress. Consider the following:
- The term “ESG” (environmental, social, and governance) has become the term of art at most business, activist, and investor conferences;
- ESG data is being collected and distributed by investment powerhouses such as Bloomberg;
- Investors have filed increasing numbers of shareowner resolutions requesting sustainability disclosure, with 39 this past year;
- Key investors like the CalPERS, CalSTRS, and NYCERS now serve on the board of groups like Ceres and the Principles for Responsible Investment (PRI);
- The Securities and Exchange Commission has issued guidance on climate disclosure and has promised to investigate the value of sustainability information for investors;
- International organizations such as International Federation of Accountants (IFAC) and the Global Reporting Initiative (GRI) have formally engaged to discuss the fusion of financial and sustainability into “integrated” reporting.
At the same time, despite these advances, the United States still has not fully emerged from our turn-of-the-century mental paralysis by integrating sustainability into our thinking and institutions. For example:
- During the recent debate over financial reform in Congress – a once-in-a-generation opportunity to rethink the basic structures of modern capitalism – the deeper notions of value creation offered by sustainability remained absent. Thought leaders and policy makers, including the activist community, were unwilling or unable to express any opinion on the world’s changing physical and social realities, thus short-changing key questions about how society creates – or destroys – its future.
- Wall Street still is dominated by a preoccupation with gambling and short-termism, justified, in theory, by insipid concepts like earnings per share.
- In the United States the adoption of the Global Reporting Initiative guidelines, the world’s leading standard for sustainability disclosure, lags far behind many other countries.
- Many corporate board members, according to a recent study by the Conference Board, have yet to draw a connection between their duties to set strategy and the long-term strategic implications of sustainability.
The cause of America’s slow-poke status does not rest solely with corporate management. It can also be linked to the silo-based thinking that continues to plague the majority of activist groups, institutional investors, business school professors, and lawmakers. There are exceptions, thank goodness, but society will not move towards rapid change until those exceptions become the rule.
Disclosure: Bob Massie has former affiliations with some of the organizations mentioned in this commentary — see his bio for more information.
The views expressed in this commentary belong to the author only, and do not necessarily represent the views of The Transition Group.
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I find the ESG “term of art” disappointing as it removes “economic” from the three-legged stool. Since the Bruntland Commission, sustainability has been talked about in terms of the triple bottom line of economic, social, and environmental sustainability. However, as it has been applied to “corporate responsibility,” there has been an growing tendency to redefine it as “ESG” – environmental, social, and governance, with “economic” perhaps relegated to be a subordinate aspect of “social.” While corporate governance is certainly significant, this approach demotes economic sustainability – including such issues as poverty, job security, and workers’ rights — to secondary status. But economic issues are surely crucial for sustainability – and for making sustainability issues crucial for ordinary people. (Shareholder and governance activists have been leading the charge when it comes to corporations reporting on their environmental, economic, and social footprint.)
Yes, we need more “integrative thinking” in business (to borrow Roger Martin’s phrase). To that end, good corporate governance should address sustainability considerations intrinsically, not treat them as an add-on consideration. Unfortunately, I don’t see much evidence of this.
In my contribution on corporate governance best practices to a new Wiley finance textbook (see http://trustenablement.com/index.htm#book), being released in September, I introduce the “aspirational corporate governance” framework with the hope that it will help integrate sustainability considerations into the core of good corporate governance.
The term “ESG” is terribly awkward, and perhaps the legacy of the silos we had back at IRRC (although that might be presumptuous). “Sustainability” can mean pretty much anything, though, and so while almost everyone can rally around the idea that it would be a good thing (evidence: high votes on sustainability reporting proposals to companies, the plethora of corporate reports–some of them mere puffery and others truly serious accounts, and overuse of the term), it’s sort of like wearing an American flag lapel pin. Everybody’s patriotic, everybody’s “sustainable,” but very few are radically changing the way they do business or think. Bob’s point is that we need that radical re-think if we are to make changes before the whole system implodes further, I think.
Here’s another set of questions: Should companies consider their corporate political giving in the context of their sustainability policies? Or is political action by companies just part of “normal” influence peddling (as regulated) and how companies work the system to further their interests, which is legitimate? What would a “sustainability corporate political action policy” look like?
Perhaps we have a four legged, not three legged stool: EESG (Economic, Environmental, Social and Governance). Although the Economic might subsumed as present within one or across all of the other legs, to Joe’s point, too much of what is important is lost. We need not choose between economic and environmental. Long-term sustainability requires both, equally.
Many thanks to those who commented on my first post on “silo” thinking. I posted a new commentary responding to your comments here: http://murninghanpost.com/2010/08/01/multiple-networks-syndrome-diminishing-sustainability-impact/
Please keep the dialogue going there.
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