Including unsustainable companies in ESG is good for everyone
ESG is now an essential part of business. Companies across the globe are assessing how to implement ESG initiatives that meet investor needs, reduce their operational risks, and improve their public image. This process is natural for value-driven companies or those with strong existing environmental and social ties.
But is it hypocritical for inherently non-sustainable companies to be reporting on their ESG efforts? From mining to fracking, paper to plastic, should business models that create environmental or social problems be blacklisted in the ESG world?
In short, no.
We firmly believe that companies with environmentally or socially harmful business models should be engaged and included in ESG activities. ESG goals and initiatives serve both short-term and long-term needs for questionable companies by helping them to reduce harm immediately while developing sustainable strategies to compete in the future.
This type of change is good for everyone! Harm reduction can help communities and ecosystems to avoid negative impacts entirely or to begin their recovery immediately. Long-term strategic moves in which companies shift their business models to drive competitiveness are likely to integrate environmental and social priorities into the core strategy due to the increasing prioritisation of ESG in the global economy.
Businesses benefit from both the process and the results. Companies that have an informed understanding of the effects of their business are better able to identify ways to optimise their production or meet investor needs, all while reducing risk and planning for the future.
Companies with inherently unsustainable business models have the greatest opportunity to create impact through their changes. Working with them provides an opportunity to support their transition and reinforce the value of their efforts for both the business and our society.
Engagement helps more than avoidance
Ignoring businesses we dislike does not make them go away. In fact, strategies like divestment can have negative repercussions, including driving companies to private markets where they face less regulation and have a lower level of transparency. If ESG supporters and experts continue to ignore businesses with problematic business models and low levels of environmental and social sustainability, we risk creating secondary markets where ESG is not considered at all. Instead, engagement is the best strategy to drive change.
Ørsted is a great example of the benefits of engagement. While the Ørsted name is now representative of renewable energy and sustainable business practices, the company has not always been a driving force for ESG. The priorities of its stakeholders, including its majority owner Denmark, drove the company (then known as DONG Energy) to invest in renewables as a core piece of their business. Over time, they transitioned more completely, ending their use of coal, divesting from oil and gas, and changing their name to reflect new priorities. Without a high level of engagement from owners and stakeholders, Ørsted may never have been able to achieve the strong financial performance and wind dominance they are now known for.
The top 3 reasons for working with unsustainable businesses
Companies that are interested in truly assessing their ESG practices and working toward something better are worth supporting through engagement. Here are the top three reasons we choose to work with businesses in blacklisted industries.
1. Companies need to change – and they know it
Companies are increasingly aware that their ESG efforts could be a competitive advantage – and a lack of effort might be a disadvantage. Many industries are rapidly moving away from longstanding practices as sustainable or less harmful alternatives are increasingly prevalent, accessible, and competing for market share.
Companies that have been blacklisted by the ESG industry, who may already be facing negative public perception, divestment campaigns, and increasing regulation, are perhaps even more aware than the average company that their businesses may not be future-proof. They know that industry-wide moves toward green energy and human rights could spell disaster if they cannot diversify or refocus fast enough.
This awareness of current and impending challenges creates an opportunity for real change. Companies know that a strong marketing campaign is no longer enough to manage regulatory and competitive demands. Greenwashing in the present will not help them to generate an innovative and competitive strategy for the demands of the future. Instead, they are incentivised and motivated by changing norms to form real, practical solutions that address both short-term and long-term market demands.
By sharing our expertise with these companies, we can help to ensure that the actions they take now make good use of their resources while simultaneously creating impact that will help the company to manage its current needs and remain strong as it moves into the future. With our support and expertise, companies can make educated, impactful moves that pay off for everyone.
2. We still need their services right now
Our society is still highly dependent upon unsustainable or otherwise undesirable industries. Taking a hard look our societal needs can provide an essential reality check about these businesses and motivate us to help change them rather than avoiding them.
It is easy to forget that if around two thirds of Danish energy comes from renewable sources, at least one third does not. The weapons provided to Ukrainians fighting for their country had to be manufactured somewhere. And the computers we use to drive our sustainability initiatives come with a whole host of social and environmental concerns, including the significant environmental impact of semiconductors and the human rights implications of cobalt mining.
Our society relies on products and services that create both positive and negative impacts. Non-renewable energy may be furthering climate change, but it will keep us warm through the winter until our renewable energy production can fulfill 100% of our needs. And while personally boycotting a product might feel good, forcefully ending all production or eliminating services prematurely is most likely to exacerbate social inequities and harm those who need the most support. Those with resources and access will always find another way to meet their needs.
Instead, we support everyone in our society by working toward short-term harm reduction. Offering support to businesses providing necessary but unpopular products can help them to limit their impact while they continue to produce essential products. We focus on reducing the harm that these businesses create right now.
3. Change takes time so we need to start now
Harm reduction is an essential part of ESG efforts, but it is a short-term strategy. In the long term, companies with inherently unsustainable business models will need to revisit their business models to stay alive. Effective, long-term strategic change requires thoughtful planning and ongoing transitions.
While Ørsted provides a great example of a move away from fossil fuels, their success has been a long time coming. The company spent 17 years actively transitioning out of coal, but now its strong financial performance, positive public perception, and continued global expansion demonstrate that the lengthy effort was worth it.
Other companies can follow similar paths to prepare for future needs, but they must start now. We know that providing expert ESG support to motivated businesses is the best way to ensure that their ESG initiatives are fully integrated into corporate strategy and implemented across the company. By working together with companies, we can help them assess what is most material as they look toward the future.
Support change to create it
We support companies in developing their ESG initiatives now because we want them to make this change. Avoiding our problems will not make them go away. Instead, we are ready to dive headfirst into these challenges to create value for both companies and society. By sharing our expertise and providing a realistic assessment of company risks, we can help to drive innovative and profit-making business practices that have a net-positive impact on our society and environment.
Are you ready to begin your ESG journey but not sure how to get started? Do you need support in completing a materiality assessment or creating a credible ESG report? Read more about our work with ESG or reach out to learn how we can help your company plan for changing ESG needs.
Ønsker I at arbejde med ESG, men er I usikre på, hvordan I skal starte? Læs mere om vores arbejde med ESG eller kontakt os for at blive klogere på, hvordan vi kan hjælpe jeres virksomhed med at rapportere på ESG.