Rolling in the deep with ESG
How ESG professionals can go deeper into the data to find purpose
As mentioned last week, I didn’t address ESG talent in ESG Mindset. Instead, I opted to instill an ESG mindset so that if the reader wanted to deliver change at their company, they had an idea of how to think about their business. And it seems to be resonating. I received good news from my publisher that the book has been well-outpacing the sales of their average title since its launch!
This week, let’s take that dive a little deeper into ESG talent because it is a conversation I often have as people try to understand how to match up their sense of purpose with their work. Whether you are an environmentalist, someone looking to correct social injustice, transitioning your business to resilience, or trying to drive impact in your company as only you can, ESG will likely play a significant role in helping you secure executive buy-in, rally business stakeholders, and garner budget.
As readers of The ESG Advocate know, ESG is a tricky topic as it can mean various things to various companies. As a result, not many companies have ‘ESG programs’ per se. Instead, you’ll find a Chief Sustainability Officer, Head of Impact, or a Chief Diversity Officer, and their usually small teams. I will refer to ‘ESG professionals’ and ‘teams’ as a catch-all for this read.
The function of these groups can cover a range of responsibilities, which can also vary from company to company. Many long to grow their influence across the business to drive improvements and innovation, but the more I talk to people, the fewer I find doing little besides working with disclosures. This has created specific trends around ESG roles and talents. Yet, the disclosure pain point is along the path to more significant influence and action.
Disclosures and data lead to role changes
To understand the opportunity for ESG professionals, we need to start with the disclosures and the talent trends it has created.
Before the current regulations and reporting frameworks, these roles and their offices were driven by the desire to make a positive impact and/or address ESG issues. Over the last few years, ESG teams have significantly transformed into Controller-type accounting roles. The introduction of regulations to standardize the collection of comparable ESG data for financial and stakeholder analysis has driven this pivot.
Focusing on universal metrics for comparability might show improvement over time. Still, that information might be useless in a single report or even across the industry since every business’s operations vary. Universality in the metrics also misses what companies need to understand most—the material intersection of ESG with their operations and value chain. So, not only could the disclosures prove a distraction, but the painful shift toward comparable data has led to a continuous cycle of annual data collection and reporting, overshadowing the valuable work that these offices were once known for.
While the saying ‘we can’t manage what we can’t measure’ is popular, there are two things for ESG professionals to remember.
First, ESG data alone no longer drives change. There's an assumption that action follows data, but sometimes, there's a lack of time or willingness to act. I consistently hear this frustration from ESG professionals.
In a silo, ESG data remains relatively useless to the business, except for regulatory reporting and disclosures. For example, a sustainability office might find its largest facility is tied to the most emissions. Still, without the material context alongside other business data, like electricity mix information, activities in that facility, and perhaps building information, it will never be able to materially decarbonize that facility or manage other ESG issues effectively.
Second, companies might not be measuring the right things because the disclosures heavily favor that universality, and, as Alex Edmans recently pointed out, not quite everything can be measured. In a world of disclosures, it can be easier to comply and use the ESG data as a proxy for overall performance over time rather than dig deep into meaningful and potentially other non-standard metrics to uncover what matters.
The disclosures are a perfect storm of attention, reputational risk management, and fines to fill in the chaos, supplanting the chase of any physical and transition risks or potential impacts that may exist.
And so we disclose. Like a mother bird pushing its newborn out of the nest, ESG teams push data into the world to see what happens.
From the shift to disclosures and data, a peculiar talent trend emerged. ESG professionals, who I believed had fulfilling roles at major companies leading the transition, left their posts. Conversations with these individuals revealed a common thread—the intense focus on disclosures drove them to burnout. No longer was purpose aligned to work, and they found little influence to get things done. Those left behind would jump at the chance to move ahead, only to find similar dissatisfaction because the company has little appetite for change.
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The grass isn’t always greener
Often, I write about how disclosures don’t necessarily help companies think through their material intersections with these topics, leaving ESG risks and opportunities unmanaged. For example, a food company going into its supply chain and asking a farmer to measure and report carbon instead of asking about the impact of climate change seems to miss the point. Still, I was surprised that the disclosures led to a painful and repeatable story from talented ESG professionals.
As these people leave their corporate posts, two deeper talent trends emerge around the movement that others should be aware of.
Those employees vacating their posts often move out on their own and consult. This allows them to engage in targeted, meaningful work. This has created an opportunity for those looking to break into the field. The departure of ESG professionals allows those looking to break into sustainability to join, albeit on disclosures, which can be an excellent entry-level role. However, this cycle risks starting again as incoming folks quickly become frustrated and burned out.
When I meet with those looking to break into the ESG space, they recognize the focus is often on the disclosures in the job postings. They are willing to make the move to find that purpose, but the results are very mixed.
So, publishing comparable data is the root cause of this talent shift and the machinations surrounding it, running much deeper than an employee’s surface-level misalignment of expectations.
The way back for talent is ESG, but it is a tough road
Coming out of COVID-19, the social justice issues of 2020, and even increasingly extreme weather events, employees are filled with purpose like never before. Not all are trying to completely pivot to an ESG role, although some are. Many are just figuring out how to add purpose to their work. Employees see the world changing around them and know they and their company must play a role. However, carbon isn’t universally material, neither should DEI programs all look the same, and there is way more to ESG than these two things.
Rather than fostering employees’ newfound will and cultivating their unique intellectual capital about the business toward productive transition or risk efforts, companies are turning to smaller teams to focus on disclosures, leaving many longing for purposeful positions that don’t exist. What’s worse is seeing a company publish glossy platitudes when employees know it is a strawman for reputation management.
In the backdrop of all of this, there are refrains that there is a sustainability talent gap, but what does that mean exactly? If you search for ESG or sustainability-related jobs, you will uncover that these roles often relate to regulatory and framework expertise. We also need people to do material and meaningful work, but companies seem unwilling to make this connection, meaning the sustainability talent gap is probably more significant than we think.
But there is a way out.
The management team needs to step up
As the world struggles this week with potential recessions (or at least market pullbacks) looming, the management team must remember that managing ESG issues may not protect against stock volatility in the short term but is an excellent tool for weathering these storms. Whatever is going on now will be the first real test of ESG, as COVID appeared to be that test but only drew attention to the topic.
In the constant battle around emerging, complex, and interconnected issues, employees who understand the core business and are empowered to act are the best resources. A management team will find purpose-filled employees looking for a chance to learn and drive material and impactful change.
Using an ESG mindset as a foundation, the management team has a fantastic opportunity to match purpose with core business issues like climate risk, stakeholder management, and transition opportunities. The time is now to get started. Employees will only deepen their understanding of the business as the company builds resilience and longevity around its material ESG issues. Without this approach through the business lens, any ESG or impact programs will stall over time and be of little value.
In other words, if you think companies are pulling back DEI programs and sustainability goals because they are low value, that isn’t the case. Those companies didn’t thoughtfully consider the material intersection of those topics and reacted to crises and pressure. Reacting to systemic issues, rather than proactively planning, isn’t the way to create a lasting strategy.
The ESG team needs to pivot to the business
Further inside the organization, those scrappy teams working on the disclosures can drive change throughout the company with creativity, ambition, and strategy. Admittedly, they must find time, which may be no small feat.
ESG teams sit on half of the puzzle to drive material change and impact, and in most cases, little of the influence and budget. This sounds harsh, but it is the reality. Does a sustainability team have more influence and budget than the procurement team or operations?
The key lies in additional ways to use the data collected for disclosures. The data has value, but it must come back into the company alongside other information to be valuable.
ESG data, like the acronym itself, works better with an interconnected perspective. In this case, non-financial ESG data works best with operational and financial data.
Let’s look at this through the lens of a typical story I hear. An ESG analyst has gathered and converted all the activity data into environmental metrics. A stunning internal report is created that shows emissions going up over time. The plucky ESG analyst sends the carbon data and case studies on shifting consumer and business sentiment to the management team. While it is all interesting, without the business context, the management team can’t tell what to do about it.
How could they possibly know what to do without the context?
Linking ESG data to broad trends isn't enough, nor are calculations. ESG professionals must also link the data to the business.
Therefore, business data is vital to an ESG professional’s job because it represents the context that leaders and the management team need to make an informed decision, but this is a massive challenge. Spread across internal siloes, companies are sitting on disconnected data sets and are unlikely to share their proprietary data outside of their internal fiefdoms. Yet, ESG professionals have a rich opportunity to help connect the dots around the organization.
ESG professionals must move from educators to sellers. A salesperson has little influence until the purchaser makes a move, just like the ESG team has little influence until someone at the company sees the value. As an IT professional, I found a similar low influence in the organization. If I thought we needed new infrastructure, securing interest and budget was convincing the business that performance or stakeholders were suffering.
It isn’t about educating the management team to act; it’s about convincing business unit leaders that they are either missing something or that there is an opportunity to be had. This need not be a win-win either. It needs to be a well-formulated message in partnership with others. ESG professionals have a chance to use ESG as a forcing function to drive connections between internal stakeholders and across the value chain for two reasons:
Management is pressuring staff to at least collaborate on data-gathering for disclosures, which means some of the heavy lifting is already done.
ESG issues can’t be ignored and have underappreciated intersections with the business. Over time, crises will surface this need.
A savvy business unit leader would recognize these two points already. To ‘sell’ to them, approach them to align with their pain points and annual priorities. At worst, highlight that ESG shouldn’t be a bolt-on after the fact because you will need the data, at least for disclosures. At best, be their ESG expert and ideate on how you can help them with your data or other ways you can help.
Remember that low influence the ESG professionals have? ESG professionals would do well to align with other business units like this, leveraging other teams and their influence to grow (see my IT example above).
I’m not advocating for an ESG know-it-all. Still, I am saying that working with business unit leaders consultatively at the intersection of their pain points is an effective way to get things done and piggyback on their influence.
The execution from here will depend on your company, its culture, and internal politics. But if you can find willing business unit leads or champions and successfully uncover their priorities, your efforts will become a driver of business value. Skills valuable in sales, like networking, analysis, and convincing, are critical. Once business value can be consistently created and your company understands its unique intersection with these topics, you might find yourself on the side of meaningful work for the company and yourself.