ESG & Employees Shape Future Business Success

Society has become increasingly polarised. As civil liberties are lost, society’s belief in a zero-sum game – you win, I lose – increases, and these beliefs spill over into attitudes towards business.

This polarisation has significant knock-on effects, including views on Environmental, Social, and Governance (ESG) factors.

Considering the mixed messages we receive about ESG (do companies genuinely care, or is it just box-ticking?), it is not surprising that many are cynical. This scepticism is compounded by the wide range of issues that ESG covers – from water management to board diversity. Furthermore, the responsibility for ESG adherence lies with leaders, making it seem like a distant problem for many of us.

With unrelatable ESG goals, it is difficult to create a sense of purpose around ESG, leading to an ESG backlash. Part of this backlash also arises from the belief that ESG and profits are mutually exclusive. Adhering to ESG regulations can be expensive and, in the short term, may not seem worthwhile, especially if there are targets to meet.

In his excellent book “Grow the Pie,” based on thorough academic research, Alex Edmans, a professor at London Business School, examines companies that centre their purpose around stakeholders as well as financial performance, including the impacts of ESG investing. The jury is still out on whether companies that incorporate ESG perform better financially – partly because of the lack of unified measurements of ESG. Generally, companies that are purposeful about ESG and not just box-ticking tend to provide better financial returns. However, this could be because these companies, being more purposeful, are better managed.

Edmans found that investing in companies listed in Fortune’s 100 Great Places to Work each January yielded a 3.5% higher return than the market.

Therefore, shifting the focus from ESG to employee welfare may be a more sustainable solution for the organization. After all, employees with a sense of purpose are more likely to drive significant change than leaders merely ticking boxes.

In May 2024, I joined 1,100 other leaders at the B for Good Leaders summit in Amsterdam. This annual summit gathers leaders from around the world who are certified as B Corps or closely aligned with B Corp principles.

The B Corp movement, whose mission is “Making Business a Force For Good,” provides stringent certification for organizations to prove their environmental and social credentials.

B Corp certification is different from Benefit Corporations in the US (also rapidly growing in Italy and France) or Community Interest Companies in the UK, of which there are 31,000. It focuses on certification, using measurable and stringent criteria, rather than a different way of incorporation.

Over the past 30 years, I’ve attended many conferences and summits, often socialising with “frenemies” – the art of pretending to be friends with competitors. This summit was remarkable; despite participants being competitors, the desire to cooperate and find better ways of doing business was palpable.

Many participants were environmentally focused, but with the looming threats and opportunities brought by AI, much discussion also centered on how AI and purpose can be aligned.

This concern is shared by both Marcello Palazzi, co-founder of B Good for Leaders:

“There are a growing number of leaders who are taking steps to make business a force for good. They achieve this by having purpose – purpose for their enterprises, employees, the environment, investors, and all the other stakeholders their companies touch. Only through purpose for good can we ensure that we also use AI for good.”

Leen Zevenbergen, who co-founded B Good for Leaders with Palazzi, adds:

“The movement of purpose-led organizations is growing, but we need to convince businesses to have a mentality to grow the pie rather than taking a slice only for their benefit.”

From my numerous conversations with leaders at the summit, it was clear that their attitudes towards employees were instrumental in determining how AI would be incorporated within their organizations. By giving employees purpose and autonomy, leaders understood that AI could be used to bring additional value to each employee’s work (who in turn could improve ESG) rather than as a tool to minimise human input and maximise short-term profit.

Evidence, such as that provided in “Grow the Pie,” combined with an ever-increasing movement of businesses considering employees and other stakeholders alongside profits, will allow us to move beyond the creed of Taylorism and traditional bureaucracies. With the changes that AI will bring, it is imperative that businesses communicate their purpose – this will help their ESG policies as well as their profits.