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Friday, December 09, 2022

The lasting worries of the long road to sustainability

It is fashionable (and strongly recommended) today for any company to declare its commitments in terms of the environment and to show its results obtained in the fight against global warming. But beyond words and figures, what is it really?

In November 2020, I had published in this blog a post (quite critical, even scathing) entitled “The fight against global warming: the great dis)illusion?”. In a year and a half, the cries of alarm from the IPCC have multiplied, the latest announcing an imminent catastrophe if we do not ” let’s not reverse the trend »: we cannot deny that the climatic events of this summer (record heat waves and floods) seem to confirm these statements.

To reduce the increase in the temperature of the atmosphere over the next decades (more precisely, to reduce the acceleration of this increase), governments are therefore exerting a certain pressure on their citizens, both at the individual and professional level via their employers, to implement appropriate measures. In this context, I recently discovered the concept of Environment, Social and Governance (ESG), whose criteria make it possible to measure the effectiveness of a company in terms of the environment and social issues: this acronym has become ubiquitous and recurring in most economic and industrial articles. In this post, I will focus on the environmental component of ESG.

I can’t help but point out, to begin with, that green, which has become the emblematic color of ecology, is increasingly used in a number of logos and various sites: in the space of a few years, everything the world has become green and sustainable, there are even road hauliers who proclaim their durability on the sides of their trucks, a shame!

I come to ask myself the following question: are the measures taken by companies for the climate effective, and above all, are their commitments really kept? The legitimacy of this question is reinforced by the publication, on July 20, of an article by the English strategy consulting firm LEK Consulting, following a survey of decision-makers from 400 companies around the world: ” Companies see long road ahead to realize their ESG commitments”, with the subtitle (translated): “Executives recognize that the measures, metrics, skills, culture and governance necessary to meet sustainability objectives are not not kept”.

The main obstacle is constituted by the divisions of the management teams on the balance to be found between short-term financial priorities and long-term ESG objectives: if the companies questioned wish, for “sound” business and social reasons, become more sustainable, they are not really ready to be, and especially at the executive and management level.

Companies are guessing the potential of their ESG commitments: more than 700 of the 2,000 largest listed companies have committed to carbon neutrality, 600 of the FTSE [1] aim for this goal for 2050 and two thirds of the S&P 500 [2] set targets for reducing their emissions. But… the challenges are multiple.
Especially :

alignment measures are made difficult by the extent and complexity of the risks associated with ESG criteria, as well as by the absence of key performance indicators (those famous KPIs in the Anglo-Saxon terminology, now an essential part of any control of the good progress of a job; I will come back to this in a future post)

leaders are increasingly aware of sustainability risks, but they lack a holistic view and the tools to manage these risks

Among these, we find of course the cost of the energy transition, the non-standardization of ESG assessments, the reputation in the face of the “cancel culture”, etc.

The firm behind the investigation does not lose hope, and recommends:

to establish a common language

to invest in educational programs

encourage managers to analyze the financial and non-financial strategic choices involved in ESG objectives

start setting measurable goals

to link compensation to ESG advances.

We find the truisms dear to consulting firms which have an annoying tendency to confuse objectives and strategy…

However, the article is very interesting in that the survey has highlighted the real difficulties encountered by companies in their desire to comply with ESG criteria, beyond “greenwashing”, which is necessarily condemnable, but to whom we give the opportunity to find in these difficulties a raison d’être, if not a legitimacy. Apparently, the environment does not escape the complexity of our modern world either, which leads me to resume once again in conclusion the title of a famous album by Sempé: “Rien n’est simple”.

[1] The FTSE index concerns the 100 best-listed English companies on the London Stock Exchange.

[2] The S&P 500 index concerns the 500 American companies with the highest Nasdaq or NYSE ratings.

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