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The Cynical IT Exec's Guide to Implementing ESG #0.1
I’ve started writing an ESG implementation guide under the working title “The Cynical IT Exec's Guide to Implementing ESG”. It will take a while to get to version 1.0 that I can make available to you (for free, of course), but here’s a sneak peek.
If you are an IT company and are thinking of implementing ESG practices and/or reporting as part of your routine operations, please send me an email at firstname.lastname@example.org with your worries, past attempts and pushbacks from the Board / management. I’m working on the “overcoming politics” chapter and would love to get more examples (I’ll keep them anonymous).
Here are a couple of snippets for you:
The last thing an executive wants to hear from the Board and other executives is that s/he is wasting their time on non-value-added activities. This can result in a long-term stigma and a loss of face.
You might’ve noticed that most materials on corporate governance already assume there’s already a governance framework in place, which needs to be improved somehow, but the basic pillars are there and the entire company agrees to play by the rules. To put it more obviously, there’s already a lot of common ground shared between the directors’ and executives’ understanding of how things should operate, what sort of reporting they, shareholders and exchanges require.
And the bad news is that this is of very limited use when it comes to the naive question of “how did we all get here in the first place?”. It will be fair to say that ESG implementation mostly applies to mid-late-stage private companies with substantial operations and a wide range of stakeholders. Thus, by the time these companies hit the public markets or take out a large loan, they’ve already sharpened their teeth at the ESG topics and have believable answers to uneasy questions.
There are two issues with including “society” as a stakeholder (mind you, I don’t have an agenda):
These people are not financial stakeholders in the firm (in a sense that it doesn’t have any financial relationships with it - either as employees, customers, suppliers, etc.) and don’t have a claim on what activities it carries on and how it performs them.
Looking after the “society” involves financial costs that have to be explained to the shareholders. So far the dominant point of view is that if an investor feels philanthropic, they should do it out of their own funds (dividends, capital gains, etc.) rather than from the company’s funds.
So far it’s a philosophical topic, but the trend goes towards recognizing the society as a full-scale stakeholder, which can tell the company what to do - usually via the mass media, i.e. bypassing the common governance vehicles. Smart investors understand negative externalities and require companies to at least disclose their analysis on the potentially sensitive topics. Cynically, this is just risk management.