Environment Social Governance and Good Growth companies Abstract
Pooja Khosla and EdmundBradford discuss the concept of good growth and how it fits into the concept of being a good company.
Pooja says that ESG is designed to provide standardized metrics to measure how an organization impacts all the creatures that live on the planet, including human beings.
Edmund says that investors are stepping up to utilize this knowledge to support Good Growth which is beyond and better than regular growth.
Transcript How does ESG fits into Good Growth
[00:00:08 –> 00:01:11]Edmund: Hello, everyone. My name is Edmund Bradford. I’m director of the Good Growth Academy. And in these little videos, we’re looking at the subject of, ESG which is a major term used commonly when talking about sustainability, especially by the investor community. Today we’re going to be thinking about how ESG fits into the concept of good growth. And to help you with that, I’m very pleased to welcome Dr Pooja Khosla, who’s vice president of client development at Entelligent. Good morning Pooja thank you for joining us. So we talked to the last video about what ESG is, how it’s different from sustainability, and why it’s important. What is it designed to do and how does it fit into the kind of concept of being a good company?
[00:01:13 –> 00:02:11]Pooja: So Ed I would say that ESG is designed to measure to standardize for metrics of part of which is just sustainability. Pretty much why do we need accounting? Accounting, make sure that the financial goal of an organization was achieved. ESG is the accounting of environmental, social, and governance causes of the organization. When we talk about growth, growth alone is an incomplete concept. Growth needs a partner, a partner where the growth is beyond the financial fact sheet, where the organization can show growth from inside out in their systems, in their governance, in their contribution to the society, to the planet.
[00:02:12 –> 00:02:25]Edmund: It’s not just about this is a thing that I found interesting when delving into ESG, that it actually is not just about looking at an organization’s impact on the planet. Is it’s far more than that?
[00:02:26 –> 00:03:59]Pooja: It is far more than that. It is also looking at organization impact on the creatures that live on the planet, including as human beings. So it’s beyond environmental, how an organization takes its employees, how the organization takes its consumers, how it basically sets and grows the trust of the community that supports that organization. So it is much beyond just contributing to the planet. It is contributing to the people on the planet as well as to the other creatures. Like, look at the impact on biodiversity. So it contributes to everyone, every creature that lives on the planet. So in order to make sure that we achieve good growth, it is time when we think beyond financial returns. I know financial returns are the fiduciary responsibility of everybody, but we have to consider environmental returns, social returns, governance returns pretty much on par with financial returns. If we have to focus on good growth and good growth is the best way to grow, it is to grow with trust. It is to grow with confidence. It is to grow with the value creations of all stakeholders rather than just value extraction.
[00:04:00 –> 00:04:39]Edmund: From your work with the investor community. Have they suddenly all become angels now, the investor community? As I said, well, we’re doing this because actually, we all want to be good investors, et cetera. Or is there just some really hard business cases out there and evidence and research that suggests that having a company with really good leadership, I’m thinking about companies like, Unilever than really trying to become a good company? Is there more and more evidence now that investors are seeing that most of the companies or actually give them better returns?
[00:04:39 –> 00:05:57]Pooja: So and I would not say angels and demons over here, rather, I would be scientific being a scientist, it’s about information. Like even when we talk about efficient market hypothesis, perfect information is very important. Before today, before the ESG, there were a lot of blind spots. But today, because of a lot of forms, a lot of data and research companies jumping in to measure the impact of the organization on the environment, social, and governance with respect to recent technology, Artificial Intelligence, and big data. With respect to regulatory push on reporting, more companies are reporting than ever before. There is a lot of information now with this rich information. Investors have more knowledge, more guidance than they used to have before. And investors are stepping up to utilize this knowledge, this guidance to support good growth that is beyond growth and better than growth.
[00:05:57 –> 00:06:36]Edmund: Thank you, Pooja. That’s excellent. That’s very helpful. I feel like we should talk about this all day, but I think that’s really been helpful so far. In the next video, we’re going to be talking about one specific area of business with which we were involved, which is marketing, and why ESG is particularly impactful for the marketing profession. But until then, thank you very much. Put of your time. Very helpful as ever. And I look forward to our next video.
Investors, Governments, and customers are increasingly looking to move their money towards good companies. But are these companies the ones that are committed to sustainability, to inclusivity, to the community or to something else? Where does Corporate Social Responsibility (CSR), Environmental and Social Governance (ESG), Ethics, Profits and all the other myriad of key ideas fit in?
In this article, we will:
Explain what we mean by “Good Growth”
Explain why companies should aspire to achieving it
Introduce a model that captures all the key terms so you can speak confidently about it at your next meeting.
What is a Good Growth Company?
Put simply, a Good Growth Company (GGC) is one that aspires to grow in a good way. That means it is committed to being a force for good in the world and the more it grows, the greater its positive impact on the world.
This can be compared to how companies have grown in the past, where company growth has produced good outcomes but also has produced larger negative impacts on the world. The negative impacts could include greater pollution, more inequality, less ethical behaviour and abuse of market power.
This is not just about becoming a greener company or a fairer company. It is about embracing all the key concepts of being a good company.
Why aspire to it?
Achieving Good Growth is not some new-age dream by environmentalists who do not understand the importance of profits. The concept also includes the pursuit of sustainable profits. Indeed, we are not proposing that profits should be sacrificed to achieve Good Growth. Instead, we are saying that with Good Growth comes greater profits.
One reason why this is so, is quite simple. To do nothing means to accept a greater risk of both falling profits and a declining share price in the future. Why is this? Because investors, Governments and customers are moving against bad growth companies. Let’s look at investors first. In their 2020 report called, “2022 – The growth opportunity of the century” PWC forecasted that over half of all mutual fund assets in Europe will be held in ESG funds. This is up from just 15% at the end of 2019.
Governments too are exerting their power. There is increased funding for GGCs across the world (for example with the EU €750 billion sustainable recovery fund) and increased penalties for Bad Growth companies whether that is higher taxes on polluting activities, regulations on greater reporting transparency or anti-monopolistic intervention (for example with EU and Australian interventions with the big tech companies).
Finally, there is rising customer demand for better corporate behaviour. At the consumer level, we see it in the Greta Generation. At the B2B level, we see it in increasing demand by customers for real evidence of supplier improvement programs and we see it in new specifications of minimum acceptable performance levels on good growth issues.
So, if you are still in a bad growth mode, you really are facing a Perfect Storm against you.
A Model of Good Growth
We have created a model that illustrates the Good Growth concept (Diagram 1 below).
Diagram 1: The 6P Good Growth Model
It covers all the key concepts around Good Growth and is ESG-compliant.
We call it the ‘6P Good Growth Model’ because:
a) It covers the key areas of Planet, Principles of Governance, People and Prosperity. These are the four pillars of ESG measurement.
b) It also covers Purpose-driven Leadership (which is a key driver of Good Growth) and Sustainable Profits (which is a key outcome).
Note that there is a “sweet spot” where sustainable profits are made. This is where all the areas are working together in a combined, integrated and aligned manner. We might look at companies like Unilever and Pepsi Cola to see examples where a multi-faceted approach to Good Growth is being taken, leading to long-term increases in profits.
Fit with Sustainability
How does the model fit with sustainability? The best way to illustrate this is to show how the 17 United Nations Sustainable Development Goals (SDGs) connect to the model (see Diagram 2 below).
Diagram 2: Fit with the UN Sustainable Development Goals
As we can see, the Good Growth model covers all these as well. It can therefore be used to develop and track sustainable growth.
Understanding the Key Terms
Finally, we can also use this model to help us understand the various terms and where they fit in (Diagram 3 below).
We can see that all the key terms fit into the model. For example:
The Triple Bottom line is Profits, Planet and People
CSR covers People, Prosperity and Planet
Social Purpose covers People and Prosperity
We can also see where The Circular Economy, Inequality, Diversity, Ethics and Risk fit in.
Diagram 3: Understanding the Key Terms
If you need a definition of Good Growth, here it is:
“Good Growth means delivering ESG-measured sustainable performance by purpose-driven, collaborative leadership that delivers good, sustainable prosperity while enhancing the planet, treating people inclusively, ethically and adopting good governance principles which produce good, sustainable profits and a positive impact on the world.”
Good Growth is an important, holistic concept that will transform the way you do business. It is based on the research of many key writers on the subject, our own research with academics, consultants and business leaders – and the very latest thinking in ESG. If you want to get your organization aligned around a single vision of how to grow well, this will help enormously. It will also help to introduce and explain the key terms thrown around in meetings.