When companies don’t have coherence between what they say and what they do, or when they define themselves through marketing hype that does not reflect their true intentions or thoughts, the truth comes to light sooner rather than later.
Today, walking your walk rather than just talking the talk is more valued than ever by consumers. To achieve this, it is not enough to merely hoist fashionable flags. Companies must be sure about what their values and purpose are—especially since we are in the midst of a dizzying and uncertain global scenario, where the political, economic, sociocultural and environmental paradigms have undergone transformations in which technology plays a key role. The challenge will be to adapt with conviction, not just as a slogan. Businesses need to rethink who and what they are, where they are going and how to get there; but most importantly, they need to understand the why behind their goals.
Environmental, Social and Governance (ESG) criteria is a very good starting point for companies to resolve these questions and adapt to changes. However, to do so consistently, I believe it is necessary to be especially conscious of the “G”—that is, their governance model. This means that corporate decision makers and influencers—including the board of directors, CEOs, managers and shareholders—need to create a culture of genuine transparency, honesty and respect for environmental and social values. If the company leadership does not know its purpose, why the business exists, its values and how the company can grow and develop in harmony with the environment, corporate executives could get lost in the search for momentary solutions, losing focus and falling into bad practices, which in the long run will lead to the destruction of the company.
Sustainability is an essential result of ESG criteria, but it is often misunderstood. Some companies only associate it with what is considered “green” and get caught up in environmental strategies, such as measuring their carbon footprint, combating climate change, etc. Their main focus should instead be on the values and purposes of company leadership—that is, on its governance.
At the moment, governance is typically the least popular of the ESG elements, but I believe it is the most important. Every company needs well-defined governance to function well. Without putting emphasis on the governance model, a business will not be sustainable and consistent in its actions, nor will it be able to anticipate risks and successfully overcome them, even if its environmental and social strategies are well-implemented. Having a clear and robust governance model can allow companies to respond to the needs of the future, not just those of the moment.
For this reason, companies need to look inward and define themselves in the times we live in—to rethink the future in order to define their purpose, which is necessarily linked to sustainable development. Today, it is not only important to seek to maximize the profits of shareholders but also to consider the needs of all stakeholders and your company’s impact on society.
It is key for a company to constantly audit its operations to ensure all the departments are exercising good practices, adhering to corporate values and embracing what their business stands for. Without this foundation, any environmental and social initiatives won’t be sustainable; instead, they could collapse with every management change, every challenge along the way and/or any poor execution.
Companies must become watchdogs of their own performance to guarantee sustainability in their good practices, especially when focusing on environmental and social initiatives. That requires leadership to listen, look beyond the corporate financials, analyze present and future risks and respond to global challenges in a way that aligns with their values. Those challenges include their responses to wars across the globe and their impact on people/nations, the environment, data and privacy protection, innovation, compliance programs and more.
It is also important to understand that sustainability is not only for large companies. The excuse that implementing ESG criteria will take more time and resources (human and financial) than they are worth is not valid. A business model conceived with a vision of the future and a clear governance model from the start will actually save resources. In fact, a company that is not led by the “G” can end up having to allocate more resources to fighting scandals, retaining demoralized employees, funding public relations campaigns to rebuild their brand and defending claims that result from alleged bad practices.
We often talk about the role of companies in society, and we typically think that it is limited to providing solutions through products and services, creating jobs and generating economies of scale. But their role is much greater—even more in these times when distrust in them is gaining ground. It is about understanding themselves in the ecosystem in which they operate. They are not islands but parts of a chain; their decisions can benefit or harm the environment. Companies need to understand that pioneering and embracing innovations, instead of fearing them, can help them to be more efficient and sustainable.
I invite you to rethink your governance in light of the changing times we live in, being aware that change will not stop, so you can face today’s challenges with a long-term vision. Let us be part of a great movement for better governance. Let us be aware that growth without values or purpose is not sustainable over time. Let us act in congruence with what surrounds us. That is what will lead to success in a future led by strong governance.
By Susana Sierra in Forbes