Are You Serious About ESG?

Daniel Goleman is a senior consultant at Goleman Consulting Group: www.golemanconsultinggroup.com, author of the best seller Emotional Intelligence, and host of the podcast First Person Plural: Emotional Intelligence and Beyond, is a regular contributor to Korn Ferry. 

Last month Fast Company listed environmental, social, and governance (ESG) as one of nine top business trends worth following. But remember, in 2019, more than 180 CEOs of America’s largest corporations signed the Business Roundtable’s Statement of Purpose, rejecting the long-held idea that a corporation’s principal purpose is maximizing shareholder return. In signing, they vowed to do more to address some of the world’s greatest crises – from poverty to climate change.

Larry Fink, the financier who founded BlackRock, was among the many who signed. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” he wrote in his annual letter to CEOs and investors, saying he expects company directors to be able to show both how they will grow profits and how they will benefit society over the long term.

A year later, in 2020, researchers from Harvard Law School’s Program on Corporate Governance found that many of the organizations that supported the BRT Statement weren’t actually doing much to follow through on their commitments.

Of course, some companies have followed in the footsteps of trailblazers like Patagonia – the outdoor retailer whose original mission involved causing “no unnecessary harm” and “using business to inspire and implement solutions to the environmental crisis.”

But the Harvard Law group asserted that if the Roundtable statement really did represent a significant shift in how the signing companies thought about corporate purpose, that commitment would be reflected in their company documents. After examining corporate governance guidelines, corporate bylaws, proxy statements, director pay policies, and responses to shareholder proposals in the 136 U.S. public companies whose CEOs signed the statement, the researchers concluded that most, if not all, of the organizations had failed to make any changes to better align themselves with the BRT statement in any real way.

“Our findings support the view that the BRT statement did not represent a meaningful commitment,” said the researchers, concluding that the statement was “mostly for show.”

But the Fast Company piece argues that in order for companies to follow through on ESG, executive leadership and their boards need a better definition of what ESG performance actually means and how to measure it. The implication here is that companies aren’t failing to follow through because they are prone to lying and denial, but because a lack of clarity prevents them from taking swift and meaningful action.

This raises a critical question, from “Why is this so?” to “How can stakeholders hold companies accountable?” But the most critical question might be: “Are leaders failing to act because they don’t care, or because they struggle to know how?”

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