Operationalizing the ‘G’ in ESG is What E&C Does Best: The E&C Pulse

November 25, 2020
Kathleen Brennan

Good governance is the foundation of good business, yet too often the governance in the environmental, social and governance trifecta is the least understood, emphasized, or operationalized factor when assessing an organization’s ethical behavior.

Governance represents all aspects of how a firm operates, its ethical underpinnings, and how it upholds its commitments to people and the planet. It takes rigor and leadership to co-create what good looks like, and then put it into action. 

This is exactly what ethics and compliance officers do best, according to a panel of business leaders who participated in a webinar last week hosted by LRN and the United Nations Global Compact, “Expanding Our Understanding of the ‘G’ in ESG.”

The tendency is to put higher priority on the environment measures within ESG strategies, said Lila Karbassi, chief of programs at the UN Global Compact. “With the next huge disruption around the corner, something as important to emphasize is the governance aspect, as that is something that is not always taken into equal account.”

Karbassi went on to explain an enhanced definition of governance that captures both corporate governance and global governance considerations. These include modeling ethical leadership; fostering accountable, effective and transparent institutions; addressing systemic inequalities and injustices, and partnering with government, civil society and others to strengthen institutions, laws and systems --nationally and internationally.

This enhanced definition represents a new blueprint for courageous leadership, and is the driving force behind Sustainable Development Goal 16: Peace, Justice and Strong Institutions.

“It’s been an evolution over the past five years,” but in the end, it’s about how to move the needle to leave society better than you found it and making contributions to society unique to your business, said Shannon Klinger, chief legal officer at Novartis. 

For Novartis--which now reports publicly on more than 300 ESG-related metrics and has a board-level trust and reputation committee that oversees ESG--that means focusing on how the company is driving access to healthcare, particularly to historically underserved populations. 

“Make sure your associates understand that what you are doing is so important. Previously, we weren’t doing a good job in talking about what we were doing internally,” said Klinger. “Our associates double down on mission, values and purpose, and now our reputation and employee engagement have gone way up.”

Randy Corley, chief compliance officer at Edelman, cautions against firms trying to boil the ocean. “Compliance teams need to think strategically about risks to the company, and the areas of greatest potential impact,” he said.

Ethics and compliance teams can begin by establishing the governance mechanism to direct investments in ESG, and that relate deeply to the business. “You need to make sure the oversight is in place, goals are met, and there are means to monitor the outcomes to ensure that building a values-based culture and [putting] the 'G' in ESG is not just aspirational,” said Corley. 

Once strong processes, controls, and the right data and independent third-party assurances are in place, companies need to focus on what the data is telling them, he said. This ensures the commitments designed to meet the needs of the populations ESG efforts are meant to serve are being met.

Sharing that data, stories, and impact publicly and transparently is critical, said Corley. 

Novartis advocates for “radical” transparency, said Klinger. “Ten years ago, lawyers didn’t want to be transparent. Now, there are questions we are already being asked, and investors [and other stakeholders] are watching, and we like to be the ones putting out the facts,” she said.

LRN’s Susan Divers, who moderated the panel, said ESG is situated in a larger conversation on the role of business. “You need strong institutions--with committed values-based cultures, leadership and governance--to have any kind of positive impact on business and society,” she said.

Corley referred to troubling data found in Edelman’s 2020 Trust Barometer, which indicating growing distrust in governments and across other areas of society, based upon a growing sense of systemic inequity and unfairness.

Looking ahead, the answer comes down to new leadership and new areas of investment.

“In a divided world, the leaders we need are ones that build bridges…No country or company alone can deal with future disruption alone. Issues such as increased corruption and violence have direct and indirect impacts on business,” said Karbassi. “The private sector should serve as a complement and not a substitute for government action and the two should reinforce each other. 

LRN has supported the UN Global Compact for more than a decade. Watch the webinar. To learn more about UN Global Compact and Goal 16, click here

                                                                                                   KATHLEEN BRENNAN


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