Reflections on ESG and cuddly capitalism.
I hear increasingly that investors are putting ESG (Environmental, Social and Governance) at the heart of their decision-making processes in terms of where they choose to invest their, or their own investor’s, money. On the face of it this can only be a good thing. Who, after all, wouldn’t rather have their pension funds invested in something ethical with an eye to a broader social purpose?
However, I am reminded in many ways (and yes, I am this old) of the introduction of recognised Quality Assurance certification. The company I was working for at the time, a building consultancy, had processes and systems but, to a degree, how things actually got done was very much in the hands of the individual running any particular project. It seemed entirely sensible, therefore, to formalise these processes so that any client could be assured of a consistently high level of service regardless of who was running their project. Indeed, clients were increasingly looking for consultants to have certified QA processes before they would be appointed.
The problem with all this lay in the implementation of the system itself. Consultants were appointed and the mother of all QA systems emerged at the end of an extensive and, to be fair, rigorous process. The problem with it was that it created a system that took two full lever arch folders to contain it and was an industry in itself to keep it up to date for each and every project you were working on. And then, when the system was audited you were hit with a mountain of corrective actions as every project and client was different and none of them ever fitted exactly to the hugely prescriptive mandatory steps that were set out in the QA system. None of these meant that the project was being run in anything other than an exemplary manner just that it diverged from the system and all divergence had to be noted and this in itself took an eternity.
After 18 months of anguish, I was volunteered (me, the failed architect fresh out of university with no QA training) to fix what was clearly a totally dysfunctional system. The answer turned out to be surprisingly simply; make mandatory only those things that were essential to the delivery of every project, provide guidance on common elements of most projects and put everything else as a helpful resource in an appendix. Overnight the QA system went from eight inches to a quarter of an inch thick. And, it was still fully compliant and capable of being certified, audited and signed-off.
What does all this have to do with ESG? And what does any of this have to do with the Coronavirus? The problem with QA was that it was either loathed for being a burdensome, complicated and unhelpful system that didn’t help with the day job, or, it was cynically disregarded as little more than a box ticking exercise to be endured in order to secure more work. It should have been a valuable tool for all concerned.
So to with ESG. Having a policy may tick the boxes of potential investors, but does it actually have a meaningful impact on the business and, more pointedly, society more broadly? It is easy to roll one’s eyes at this point and note that not every business can be a social enterprise and that there is absolutely nothing wrong with being a commercial enterprise and making a profit. Absolutely not.
Take the current situation. The world is crying out for ventilators. What has the response been? Dyson has designed and developed a system within a week, Formula One teams are using their expertise and high tech manufacturing systems to produce ventilators and respirators. A company in the USA has found a way to refurbish old ventilators in a week, having been told the stockpiles of old systems would take a year to repair. Business, industry, packed with incredibly clever and inventive people has risen to the challenge of focusing on the greater good. These are extreme times and they have given rise to extreme and extremely positive responses.
Fast forward to our world of the New Normal, I can’t imagine Toto Wolff or Christian Horner giving up their goal of winning races and championships. The same will go for the rest of us as we drift back to doing our jobs to the best of our ability.
However, reflecting back on my first blog post of the current situation, isn’t now the time to take some of this kindness and goodwill and keep it going? If we can start to tackle more seriously issues such as climate change, social inequality and many of the other challenges our society faces, that can only be the good and right thing to do.
Our former Chairman, Richard Smith, used to talk about PSP representing ‘cuddly capitalism’. Business, with a soft side, let’s call it. Indeed, the very essence of what Public Sector Plc does is rooted in social good. Working with our partners in the public sector, every £1 of extra capital or revenue we can create for them can go to supporting and sustaining the communities they serve. For every project we bring forward we prepare a socio-economic analysis to show the wider benefits beyond the basic commercial returns generated within the project. On occasion we have to work backwards and take a project intended to deliver socio-economic or regeneration benefits and have to make it work commercially. Either way, we are always aware of the wider impacts of everything we do.
I’m sure, as we develop our own ESG policy, that we can go further and reflect the values we hold as a business in more and more of what we do. And, crucially, it must be owned and embraced by all staff. Indeed, I think it is incumbent on all of us to ask this question both within our organisations and, perhaps, at a personal level.
So, as ESG rises in prominence, it has the potential to make business kinder and have broader social benefits. I do hope that in response to the question ‘has your ESG policy had a beneficial impact on your business?’ the response isn’t ‘kinda, I think we have one somewhere, let me check’!