ESG: Strategy Powered by Humans
Written by Skye Phillips – Senior Manager Consulting
ESG, three letters that encompass profound challenges: Environmental, Social, Governance. Individually, each presents substantial challenges for people and the environment, but combined, they represent extraordinary consequences for leaders, countries and frankly, our planet. Stripped down to its essence, ESG standards dictate that businesses must operate in socially responsible, ethically sound, and environmentally sustainable ways.
However, while the concept appears straightforward, execution is an entirely different matter.
Part 1: Australia’s Journey to Net Zero Emissions
Australia finds itself at a pivotal crossroad on the path to achieving Net Zero emissions. As one of the world’s top emitters, our country claims the 14th spot, accountable for over 1% of global emissions. According to the World Bank, we hold the unenviable gold medal for being the highest emitter per capita among OECD countries. It’s fair to say that the old line “I love a sunburnt country” might not evoke the same nostalgia that it once did.
The urgency to act cannot be overstated. Despite modest improvements in recent years, our progress is too slow. The consequences of our actions are rapidly outpacing our predictions, and the economic toll of inaction is soaring.
Not surprisingly, the role of organisations has become central to this global narrative. As major contributors to greenhouse gas emissions, the top 100 global companies bear responsibility for up to 71% of industrial emissions. Yet, within this challenge lies both the problem and the solution:
Organisations must be accountable for emissions, taking resolute actions to reduce their environmental impact. Simultaneously, they possess the potential to act as change agents by directing investments towards climate solutions and sustainable practices.
The task at hand is profound, demanding a multifaceted approach that combines both regulation and investment. However, two critical challenges demand our attention, with one receiving significantly more airtime than the other.
Challenge 1 – The Regulatory Landscape (the one we’re discussing)
Currently, we find ourselves operating in a complex arena of policies, standards and protocols, and Australia’s status in relation to global standards is mixed. We’re making strides by investing in renewable energy sources like solar and wind power, but simultaneously, we remain significant exporters of coal and natural gas. While we’ve committed to meeting the goals of the Paris Agreement, the full implementation of necessary policies and regulations is still a work in progress.
Change is on the horizon. Australia is gearing up to adopt sustainability standards from the International Sustainability Standards Board (ISSB). This means that sustainability reporting will soon become mandatory, starting with large public entities and financial institutions. Early preparation is now imperative.
The regulatory landscape is further animated by ASIC and ACCC, peak regulatory bodies that are taking a formidable stance against misleading and deceptive practices. The crackdown extends beyond just environmental claims (‘greenwashing’), to encompass social commitments (‘bluewashing’). Terms like ‘green rinsing’, ‘green hushing’ and ‘greenlighting’ show just how complex this issue has become.
In short, the pressure is mounting on organisations, demanding that we prioritise ESG and elevate it beyond a mere checkbox, or worse, a marketing strategy.
Challenge 2 – The Human Factor (the one often overlooked)
In our collective pursuit, we’ve placed considerable emphasis on regulation, presuming it to be the primary driver of how organisations behave. We’re eagerly waiting for global standards to guide us towards better transparency, disclosure, strategy, policy, governance, auditing and compliance. However, amid these discussions, we’ve somewhat overlooked a critical aspect—the human dimension.
What we haven’t talked about enough is how to translate these regulations into tangible actions through people, how to effectively change behaviours and execute strategies. While regulation sets the framework, it is the individuals within organisations who must drive and embody these changes. Much like the safety industry transitioned from a rule-based compliance approach to prioritising organisational culture, the ESG landscape is ready for a similar transformation.
Our perspective is straightforward: sustainability cannot be achieved by regulations alone.Waiting for flawless policies and universal guidance risks missing the mark. Standards and rules will always continue to shift. There is a golden opportunity for faster, more effective progress – now.
So, how do we navigate this intricate dynamic where strategy intersects with human behaviour within an imperfect and ever-evolving system?
The truth is that systems are never perfect, mainly because humans aren’t perfect. This is where the real work lies. We must lead in the midst of uncertainties, make sense of complexity, and actively engage humans in the process. Driving ESG strategy through people demands as much rigour and discipline as the policies they hinge upon.
Part 2 – The Interchange Position – Why We’re In This
As we immerse further into the conversation of ESG enablement, we feel compelled to share our position on where we stand on the topic.
At Interchange, our essence lies in disrupting the status quo and inspiring new ways of thinking. Our approach to business topics is far from ordinary. We blend rigour with creativity, balancing the intricacies of strategy and systems with our understanding of the human psychology that drives execution. We see the dynamic interplay between tangible and intangible aspects of culture. We don’t assume that elegant strategies and plans on paper alone can ensure compliance or mobilise humans. Instead, we empower people to learn, adapt, innovate and be accountable for change.
While we value scientific and policy advancements, our focus is on creating genuine changes in how people behave and make decisions. We enter the ESG conversation like all should, with humility, recognising both the contribution and limitations of our own viewpoint.
Here are three core insights into ESG that underpin our position. We welcome your thoughts and discussions.
1. A paradigm shift is needed
Executing an ESG strategy demands a significant philosophical shift. ESG must be considered more than a set of metrics – it should be woven into an organisation’s core beliefs, purpose and DNA. This integration makes ESG bigger than any single agenda or policy.
The true potency is realised when ESG becomes an integral part of the organisation’s cultural fabric. Sustainability metrics are not just moral imperatives; they are hard-hitting business metrics, weighing on the bottom line and the very survival of our organisations. From our vantage point, in most cases, we are falling short, often neglecting the stark commercial reality that ESG is no longer a choice.
When we get to the heart of the issue, we almost always find tension between purpose and profit, and between systems and people. That part is not rocket science. The hard part is having the courage, skills, and resilience to address the conflict.
2. Clear ownership and responsibility for ESG
There are ongoing debates and discussions regarding the placement of ESG within the organisational structure. While other regions have embraced roles like Chief Sustainability Officer, Australia tends to lag behind, often placing ESG responsibility further down the hierarchy.
We support the idea of bringing ESG to the C-suite, but we believe it should go beyond just one team. ESG leadership is a responsibility for all leaders, no matter where they are in the organisation. Leaders have a pivotal role in driving ESG goals through their vision, role modelling, resource allocation and decision-making. Their stories serve as impactful tools to exemplify core values and illuminate achievements and obstacles.
Based on our experience, a common challenge lies in middle management where ESG leadership faces complexities and resistance. Additionally, sustainability managers often struggle to drive their agendas forward due to a lack of commercial acumen and strategic focus. Resolving these issues is essential for determining the appropriate leadership roles and responsibilities for ESG initiatives.
3. Translation of ESG strategy into behaviour
When discussing ESG transformations, we often emphasise the collective impact of organisations driving positive change for society and the environment. But here’s the part we often overlook—organisations themselves don’t change; people do.
The power of individual efforts and actions should not be underestimated—they can yield significant outcomes, as seen in the widespread adoption of rooftop solar panels in Australia and the success of shareholder activism that influences our system’s trajectory. Furthermore, we must acknowledge the substantial role employees play in determining the speed and breadth of change.
Rather than viewing organisations as rigid structures confined by rules, a more effective perspective is to see them as living systems capable of flourishing, adapting, and responding positively when nurtured and guided.
However, we frequently underestimate the driving forces of human behaviour, constraining our ability to rally commitment, engagement and progress in ESG initiatives.
When examining the drivers of behaviour, neuroscience highlights that people make decisions based on emotions and later rationalise them with facts. To instigate change in ESG behaviour, it’s crucial to tap into the non-rational aspects of the brain.
The complexity inherent in ESG, with its intricate scientific concepts and industry jargon, can unintentionally hinder the very change we seek to promote.
It’s a paradox where complexity obstructs progress, urging us to adopt a fresh perspective and innovative approach.
To tackle this challenge, organisations need to embark on a journey to translate their intricate ESG strategies into something more understandable and relatable. This involves crafting an engagement strategy that not only simplifies complex information but also infuses it with meaning, emotion and relevance. This translation process is a delicate balance, requiring a blend of analytical rigour and creative finesse. It’s not solely about simplifying complexity; it’s about presenting it in a way that aligns with the organisation’s unique identity and resonates with its stakeholders.
In simpler terms, it’s about transforming intricate ESG strategies into a compelling narrative that reflects the organisation’s purpose and values. By melding these elements, organisations can convert complexity into something that is not only meaningful and memorable but also actionable.
Beneath the surface, a profound shift in mindset is the key to genuine progress. While mandatory reporting serves as a foundation, it only scratches the surface of our potential. As Howard Sinn aptly said, “small acts, when multiplied by millions of people, can transform the world.” It’s not just about compliance, it’s about unlocking the power and resolve within all of us to create a more sustainable future.
ESG isn’t a mere checkbox, it’s a call to action. It should be ingrained in our organisational culture, reflecting our core beliefs and purpose. We must move beyond mere disclosures and statements, standing firmly behind our commitments. Our journey goes beyond the literal and the rational; it delves into the hearts and minds of humans.
Nothing short of a major transformation will suffice, and this transformation cannot be managed – it must be courageously led. It’s this part of the sustainability conversation that we are not talking about enough. We need to bring people, culture and leadership experts into the equation, not as an afterthought or a nice-to-have, but to work intricately with strategists, scientists, legal and assurance teams. Make no mistake, rigour and creativity must go hand-in-hand to bring ESG strategy to life.
The path ahead is undeniably challenging, but what it carries is the promise of a better world – one that we collectively shape together.