The evolution of ESG

Sharon Myburgh

Sharon M | LinkedIn

November 2022

Sharon holds a Masters degree in Urban & Regional Development, certificates in Project
Management and Strategic Planning and various formal qualifications in energy and water
efficiency, circular economy, carbon footprint, and data analysis. She has 30 years’
experience in impact assessments, more than 20 of which in consulting and has served on
various boards as non-executive director.

The global playing fields

No organism or entity exists in and of itself. It exists and operates in an environment. From
that it can be inferred that the entity impacts its environment as the environment also
impacts the entity. Thus, as industry developed globally and global trade increased, it
became necessary to have globally agreed goals, targets, standards and qualities that would
enable comparative analysis. The environmental angle made a significant contribution to
raising awareness.

In the 1970’s the effects of CFC’s on the earth’s atmosphere and the size of the protective
ozone layer attracted much scientific research. Ozone and CO2’s have been studied in the
centuries before, and some of its qualities had been known, but real momentum was gained
by what research in the 1970’s uncovered. Scientists were alarmed about the effects on
global temperatures as they started monitoring global warming and global dimming effects.

In response to the scientific research and evidence, greenwashing became very popular and
companies who could afford it, invested significant amounts of money into marketing their
own “sustainability” and “produced lack of information” that proved their products did not
affect the natural environment and the livelihoods of whole communities.

By 1987 the Montreal Protocol was agreed on and so started the reduction and phasing out
of the manufacturing of certain chemicals with high global warming potential and that have
been proved to contribute to the depletion of the earth’s protective ozone layer.

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Global events of the last 20 years have further contributed to disrupt the advancement of the
industrial revolution. Volcanic eruptions, tsunamis, droughts (in the Americas, Africa,
Australia and now even in Europe), the scarcity of natural resources (due to natural events
and global political developments) have all impacted on the Risk Universe within which
commerce, industry and other institutions have to operate. A new word has been coined for
the current status quo re disaster management: Permacrisis.

It is clear that we operate in a finite earthly environment with limited resources. New
innovations, especially advances in renewable energy technologies, taps into wind and solar
benefits, but also brings with it new challenges such as the need for storage of energy.

The need for sustainable development became an internationally adopted goal. In order to
achieve sustainability, one needs the necessary regulatory and organisational systems to
bring it about, otherwise not everyone will willingly participate. The EOLSS published an
illustration of the complexity of such a system.

Figure: The complex network of interactions between the fundamental dimensions of

sustainable development (source: Encyclopedia of life support systems, page 2. EOLSS
Mission. EOLSS Publishers. CD-Rom and www.eolss.net)

Arie de Geus in The Living Company quotes a Dutch survey of corporate life expectancy in
Japan and Europe which came up with 12.5 years as the average life expectancy of all firms.
“The average life expectancy of a multinational corporation – Fortune 500 or its equivalent –
is between 40 and 50 years, says de Geus, noting that one-third of 1970’s Fortune 500
companies had disappeared by 1983. Such mortality is attributed by de Geus to the focus of

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managers on profits and the [financial] bottom line rather than the human community which
makes up their organization. Fix this, and you have discovered the fountain of youth.”
(source: De Geus, A. 1997. Funky Business, pp 58-59. The Living Company. Harvard
Business School Press: Boston, Massachusetts.)

The phrase “Triple Bottom Line” was coined by John Elkington in his 1998 book “Cannibals
with forks: the Triple Bottom Line of the 21st Century Business”. The phrase refers to the
interlinkage of concepts of Economic Viability, Environmental Sustainability and Corporate
Social Responsibility. (source: Elkington, J. 1998. Cannibals with forks: the Triple Bottom
Line of the 21st Century Business. Gabriola Island, New Society Publishers).

The relationship between the Triple Bottom Line, values and ethics and principles, and
corporate governance which is to ensure global survival can be illustrated thus:

Values, ethics, principles in fact describes the “character” of the organisation / institution or
as some now describe it the “DNA” of the business. The “character” of the entity will
determine its governance and should wish to eliminate greenwashing. The institutional
dimension, is the “raison d’être” of the organisation, whether it be a product or a service.

1. The name of the game is Sustainability

In order for commerce and industry to become globally competitive and globally sustainable,
it needs the commitment and buy-in of the micro-organisms that such commerce or industry
consists of as well as its organizational “umwelt”, that is the stakeholders, beneficiaries,
supporters and suppliers that form part of the organization’s sphere of influence.

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Thus, the global business community also needs the commitment and buy-in of small business
and educational and other institutions as participating organisms of global economy. With all
the new legislation that is being promulgated, and consequently the burden it places on the
commerce and industry, it appears that, far from “leveling the playing fields” or “making the
global economy more accessible to start-ups” the global game of monopoly is becoming
increasingly exclusionist. This also relates to technological advancements that make access
to infrastructure and services such as energy and water unaffordable for lower income sectors
of populations.

Scenario 1 below illustrates integration of the triple bottom line (the area colored in aubergine).

In Scenario 2 the overlapping areas of the triple bottom line is significantly larger, illustrating
more integration than Scenario 1.

The scenarios 1 and 2 above illustrate both the importance of integration but also emphasise
the importance of economic efficiency. Without the integration of economic efficiency in the
total package, the integration (and sustainability) is far less, as illustrated in Scenario 3
below.

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This echoes the argument of Brechin, Wilshusen, Fortwangler and West, that one cannot
implement sustainability from the ecological or social point of view only. (source: Brechin
S.R., Wilshusen P.R., Fortwangler C.L., West P.C. 2000. Reinventing a Square Wheel:
Critique of a Resurgent “Protection Paradigm” in International Biodiversity Conservation,
School of Natural Resources & Environment, The University of Michigan, USA – p. 9)

For companies to ensure their sustainability, they need to rethink their business models and
strategies to incorporate in the new model determination of

* tolerance spaces (within which they can operate and trade)

* risks (including natural disasters, pandemics, energy, water and other risks relevant to
their geographical areas of operation and trade)
* performance criteria for their sustainability and future-proofing of their operations
* values, principles and ethics on which they base their business (investors would be
looking out for these, not just statements for popularity, but commitment to
sustainability)

and to develop
* integration of all business strategies (financial, environmental, social, etc.)
* measurement of criteria for purposes of auditing and also to measure progress
* monitoring of all criteria (for compliance and for transparency to investors)
* a climate-related scenario analysis that underpins a future-proof strategy

all in order to create value in the overall business strategy and to build resilience so that
investors would find it an attractive proposition.

For those who have not yet done so, a good exercise is to start to measure the enterprise or
institution in terms of the 17 clearly defined Sustainable Development Goals (SDG’s) and the
goals and indicators that have been published. That would already put the entity on the ESG
and Circular Economy path for international investors.

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 2. Playing the game

In order to participate in Sustainability, it is of course necessary that you start looking at your
data. The list here is not exhaustive, but certainly gives an idea of data requirements to
move an entity into the ESG s pace, with credibility. It is not just about compliance, but to
keep the focus to keep improving with regard to Sustainability, ideally to move into Circular
Economy.

Data requirements include but are not limited to: data quality, data verifiability, data
accessibility, data organisation & storage, accountability and credibility, the consistency of
data collection methodology and timelines, levelling the playing fields so that data is
comparable and investors can benchmark the entity, benchmarking yourself in the target
market.

It is still popular at many commercial and especially industrial enterprises to hold only one
sector, such as the manufacturing department responsible for reporting on their
sustainability, whilst the admin sector of the entity does not have a responsibility to monitor
and manage their sustainability. ESG will in future expect whole facility management of
natural and other resource use. The company will have to improve their competitive offering
to attract investors and develop targets and Key Performance Indicators to measure
improvements.

There are many opportunities to win at the game: improve your product or service with
research and innovation; improve your financials by reducing energy and water use, and
dependence on other natural resources; improve environmental sustainability by reducing
emissions of carbon and other chemicals with high global warming potential; eliminate
greenwashing; encourage co-operation amongst industry peers regarding research into
further innovation. Whole sectors may benefit by developing a culture of co-opetition rather
than the elimination of competition.

The SDG’s and ESG is a learning space for everybody and we need to develop new role
models that commerce, industry and other institutions can follow. Everybody has a
responsibility to contribute to our economic, social and natural environment.

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