In The Waves I: Value at the Edge, I shared our ESG Capability Spectrum. It shows how companies deliver more value as they expand their range of capability and action at the ESG edge. The Waves generally elicits a good discussion – even online, thanks to the real-time feedback of Mentimeter.
A Cheshire cat kind of point we make about The Waves is that ‘you are where you are’. And where you are is fine – unless you want to be somewhere else. Being honest about your range of ESG capability is more useful than trying to talk up your game in the absence of evidence. Obvious point, but one lost on too many corporates and/or their brand agencies. Scan the integrated reports of the Top 100 on the JSE to see how many companies claim to be ‘creating Shared Value’ without much to show for it.
A second point, which should be equally obvious, is that focusing on profit-led ESG impact (point B on The Waves spectrum) doesn’t mean you no longer manage ESG risk (point A). These are very different activities. They require different capabilities and different energy investments. Doing both well at the same time touches on the realm that my long-time mentor and friend Niall Campbell calls ‘a special kind of fitness’. (He uses it in a personal context, which I will write about sometime, but I think his point translates more or less.) In organisational terms, I am referring to the fitness needed to protect and create value at the ESG edge – at requisite scale – simultaneously.
In The 2% Company, practitioners from the BCG Henderson Institute write about the tiny fraction of companies that excel at exploration and exploitation simultaneously. They are not talking about the edge, and the second term obviously jars from an ESG point of view, but this helped me bridge the insight:
Being excellent at both exploration (new ideas and innovation) and exploitation (operational proficiency and efficiency) simultaneously is difficult because these activities are contradictory; they pull companies in different directions. They require different skills, different performance management, and an ability to drive success with different time perspectives.
The quote helps to explain why companies struggle to place the sustainability function within their organisational structure. (I don’t see sustainability as a function; it’s more like a scaffold that supports better performance at the edge.) Sadly, it also explains why so many ‘sustainability teams’ are kept far from innovation at the edge, becoming steadily more proficient at ESG disclosure despite their limited range of activity.
Most sustainability practitioners get into the job to make a difference. Then we discover that we are not welcome in those parts of the organisation that hold the greatest potential to make that difference. This can happen in many ways – implicit, explicit and usually in-between. At some stage, the cognitive dissonance gets too much and we either leave or compress ourselves into mindless cycles of ESG reporting. (Okay, not entirely mindless, but it’s a relative thing.) One upside of the present investor awakening is the number of practitioners who are receiving urgent calls from parts of the business that have effectively held them at bay for the past decade.
When we do ESG as value-protection, we’re usually trying to keep the problem away. Expanding our gaze to ESG as value-creation requires us to embrace the problem. We may even acknowledge our complicity in creating it. At that point, we connect. And we open to change. Intimacy is challenging when we’re still geared for defence. Adding another neural pathway feels overwhelming because it takes energy and our reserves are running low. At some point, we realise – individually or collectively – that the energy we need to grow and thrive is located just beyond our boundaries. It’s at the edge. As practitioners – perhaps even as organisations – learning how to access this energy delivers a Special Kind of Fitness.