In an era of unprecedented global challenges, the role of business extends beyond profit generation. Acting as a force for good is a strategic imperative that aligns corporate success with the well-being of our society and planet. It is about recognising that our future prosperity is represented as much by a cohesive society, a stable climate and biodiversity as any financial barometer. The shift towards a sustainable economy is transforming industries and redefining corporate purpose.
CSR or ESG?
The internal framework for businesses acting as a force for good by sustainable practices, ethical governance, and active community engagement is known as corporate social responsibility (CSR). The next iteration of this theme, environmental, social, and governance (ESG) has become shorthand for non-financial reporting. A newer concept used in this sphere is ‘rational sustainability’, an approach based on logic and evidence-based decision-making, favouring long term solutions.
CSRD
The EU corporate sustainability reporting directive (CSRD) will for the first time put sustainability reporting on an equal footing with financial reporting. The directive aims to support companies transitioning to more sustainable business models to create a sustainable economy. Companies need this information to make strategic business decisions and manage risk. Investors need these measures for clarity on what they are investing in and to combat ‘green-washers’ (companies that mislead us over their environmental credentials). Although only large companies with EU operations are in scope for the directive, businesses of all sizes will feel its effects.
Burden or Benefit?
In addition to regulatory and investor pressure, today’s consumers are increasingly conscientious about the ethical practices of the companies they support. Employees are also seeking more evolved, purpose-driven work environments; companies known for their positive social impact can therefore attract and retain top talent. Of course, efficient resource management, waste reduction, and renewable energy also favour a lower cost base. For these reasons and the ones mentioned above, ESG practices should be seen as benefiting business success.
Charity Model
ESG is at one level second nature to charities because they are already, inherently driven by organisational purpose. Public benefit is at the heart of how they think about ‘success’. Transparency is equally embedded in charity practices, not least in part due to the tax reliefs that they benefit from. Tax reliefs derive from public money, and therefore come with ‘best value’ and accountability imperatives.
The seven principles of the Charity Governance Code, a toolkit for charity leaders, favour integrity, inclusion, and openness. The Code is aspirational, which means that it is an ongoing intention, and commitment to the Code, that counts. For charities, good governance is not a ‘nice to have’ but mission critical. It sets the right tone and helps trustee/directors meet their legal duties when making decisions.
THE ‘G’ in ESG
As output is increasingly measured against sustainability criteria, business leaders can use the Governance Code principles and benefit from a ‘purpose driven’ mindset to bring ESG into their core strategies. There is an emerging view of the resources we all use, or invest in, whether they be people, energy, or raw materials, as ultimately being shared or community assets. Our deployment of these precious assets comes with responsibility.
ESG responsibilities are critical to both the financial and non-financial success story of our businesses. By engaging with stakeholders, innovating for sustainability, practising transparent governance, and investing in communities, even smaller enterprises can drive meaningful change. This enhances reputation and prosperity while contributing to a more equitable and sustainable future…. The values of the business world are slowly but surely aligning with those of the charity sector.