Environmental, Social and Governance (ESG) issues are an increasingly important factor in leadership decision-making. Why? Because they determine trust and drive sustainable outcomes.

ESG Means Business

A new acronym is causing a flurry of activity in corporate leadership forums. “Environmental, Social and Governance” (ESG) concerns have caused enterprises to launch initiatives to embrace new expectations around this. Failing might be disastrous – winning, so it is thought, will lead to higher value creation.

Why is that? In fact, the answer is quite obvious. Let’s consider what is behind “ESG”:

Environmental issues

Taking a mature and responsible approach towards environmental concerns or criteria covers issues as topical and relevant as energy consumption, climate change, our carbon footprint, resource management, and waste. In short, this is about how an organization safeguards the environment. Every enterprise impacts the environment and, today, the expectation is that they should model a responsible approach. 

Social issues

This reflects an organization’s standing in the community – how it manages relationships with employees, suppliers, customers, and the communities it operates in. This includes the increasingly important topics of diversity, equity & inclusion, as well as how a business treats its employees. In short, how an organization approaches society as a whole.

Governance issues

This is about how a company is led and managed. It deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights, among other things, and reflects an adherence to an accepted system of control and procedures to make effective and fair decisions, comply with the law, and engage with stakeholders.

Why is this important?

The concerns around ESG accurately reflect the mega trends sweeping our societies today, and each and every business must operate in a way as to uphold and acknowledge them – or face a backlash. With GBS responsible for providing efficient and effective business operational support, the critical importance of adopting strategies that incorporate ESG considerations is immediately obvious. As stakeholders have played an increasingly important role in enterprise, their expectations are naturally reflected in ESG policy.

ESG in GBS: Internal, External and Service Addition

As Global Business Services takes on a more strategic role in global business operations, ESG is becoming an important factor for GBS operations themselves, and needs to be embedded into service delivery.

More specifically, there are two key issues regarding ESG in connection with GBS:

1. Internally: The GBS operation must itself follow ESG rules. For example, GBS should follow accepted environmental policies in selecting its operating facilities, and should take a lead in modelling “social” requirements within its own employee base – a shift we have already witnessed with diversity, equity and inclusion policies being adopted and defining employment policy. The same applies to other GBS stakeholders. Similarly, while GBS has long taken a rigid approach to process governance, the same governance policies that guide company leadership must also apply to GBS leadership.
   
   
2. Externally (i.e., service provision): GBS can support the whole enterprise in achieving its ESG objectives by adding a brand new set of services around ESG topics. This could initially take the form of simple process additions – e.g., in applying ESG rules to real estate/facility management services; and tweaking existing services to incorporate ESG, for example relating to building certifications, furniture material guidelines, heating provider changes, etc. This scope extends, of course, to existing services like audits, which might require updating with new certification requirements. 

Somewhat at the other end of the spectrum, GBS can also start providing completely new services that support ESG requirements, such as:

• shareholder rights management
• executive pay audits and market comparisons
• diversity & inclusion KPI definition and measurement, and 
• communications.

Corporate Accountability is Here to Stay

The relevance of ESG will only increase in future, as corporate accountability is demanded by customers, suppliers and stakeholders. Companies that thought they were getting away with “greenwashing“ or thought ESG was nothing more than a “marketing gimmick“ are suddenly seeing just how wrong they were – and course-correcting, fast. 

Being “ESG compliant” is about much more than Environmental, Social and Governance issues. In fact, it incorporates a broad range of concerns that define a brand and its ethics. GBS, positioned at the heart of the enterprise, is an obvious choice for defining, owning and implementing a robust ESG policy. Just as GBS took on the role of “change agent” in driving digital transformation, GBS must also take on the mantle of corporate accountability when it comes to meeting stakeholders increasingly stringent expectations around the environment, social impact and governance. 

ESG will be covered in detail by SSON in the next 12 months – online as well as at events. To ensure you don't miss any updates, please ensure you register for our updates here.