The rising influence of ESG: a new era for social empowerment
The last 2 years have been characterized by a strong corporate response to societal distress and needs. With the Covid-19 health crisis, the Black Lives Matter social protests and the humanitarian catastrophe we are witnessing today brought on by the conflict in Ukraine, corporate aid did not go unnoticed. From repurposing production in order to meet urgent demand for hand sanitizers and masks, to six figure donations made to charities, companies have been at the forefront of providing high-impact support to a population in need.
Whilst corporate charitable giving is not a new behaviour, what is striking are the expectations that individuals are increasingly placing on single companies in a context often fueled by distrust and alertness. For decades consumers have been boycotting products and services as an expression of dissatisfaction with corporate conduct and decisions. Yet, nowadays, Corporate Social Responsibility is acting more than ever as a persuasive element in consumers' purchasing choices, also influencing their perception of the companies in question. Consumers are voicing their heightened expectation for companies to use their power and influence to attain greater good whilst pushing for products and services that are healthier, more sustainable, transparent and ethical.
This social awareness has also been reflected in recent and emerging regulations, with the enactment of laws and the design of policies ever more influenced by human rights and ethical principles. There is no shortage of examples. The GDPR responded to the need for greater transparency and control to ensure the protection of personal data, and enable an effective implementation of the right to privacy in an increasingly tech-driven world. The AI proposals from the EU and China are grounded on strong ethical premises with the aim of regulating the impact and consequences of this technology on people.
The recent regulatory trends we are currently witnessing also enshrine an enhanced anticipation of companies' ethical commitments with the aim of formalizing the need for greater accountability. The Danish government, for example, has passed a law requiring companies to disclose their Data Ethics Policy or explain the lack thereof. The EU Commission has published its proposal for a Corporate Sustainability Due Diligence Directive with an important focus on business processes to, among other goals, increase accountability for adverse environmental impacts. Following through, the World Economic Forum will publish its “Guidance Note for Boards” on Human Rights and Affected Stakeholders to help corporate boards better understand critical societal expectations and concerns and enable a synchronized development. The list goes on.
Corporate oversight and due diligence are not, however, limited to individual companies. Creating and sustaining a responsible ecosystem requires that the engagement of partnerships and third parties meet a shared ethical threshold that effectively addresses regulatory and societal demands. The field of privacy provides a good example: regulatory pressure (e.g. the recent decision of the Belgian Data Protection Authority against the IAB Europe's Transparency and Consent Framework) and industry-designed solutions (e.g. Apple's privacy labels) are shifting the perception of service providers now increasingly seen as critical and co-responsible for meeting users' reasonable expectations of privacy throughout the product and service supply chain.
These changes come at a historic moment when new technologies (despite their inherent complexity) are taking a leading role in helping boost transparency and accountability. For example, blockchain traceability is being leveraged by companies to track and verify the use of sustainably and ethically produced products throughout the logistics network.
In this context, that corporations re-imagine their role and purpose has become a must. It’s a cultural change that is indicative of a shift from shareholder primacy to stakeholder capitalism. One where the needs of all stakeholders, such as employees, consumers, and customers, guide the impact companies may have on society. However, such a transformational reform cannot be limited to a box-ticking exercise. It rather requires a systematic change in the way corporations are structured and operate, where environmental, social, and governance (ESG) concepts become critical to business and strategic decision-making. By leveraging their ESG reporting, companies can better engage in finding agreed-upon solutions that are of critical importance to their internal and external stakeholders. Moreover, they can uncover and communicate risks and opportunities for resilient and meaningful growth.
ESG reporting will be increasingly important as a way for companies to root their growth and future in the values of their stakeholders and measure their desired impact.
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