Businesses Will Need To Reassess ESG Stance Beyond Just Environment
The Russia-Ukraine conflict is ushering in a new world order of business. While our eyes were focused on whether we will enter a post-pandemic or an endemic way of handling the COVID-19 virus, another tectonic shift was happening. It happened this past week with the Russian invasion of Ukraine. Upsetting a delicate balance of geopolitical and globalization order. Including global business factors related to ESG – Environmental, Social, and Corporate Governance.
There has been an uneasy truce between business and the global economy. On one hand, the ability to conduct business on a global scale has allowed both corporations and countries to flourish. On the other hand, it has meant engaging in an uneasy, even squeamish, relationship with countries and economies that do not prescribe to important values related to human rights and freedom.
Up until last week, buying barrels of Russian oil was deemed as okay and a necessity. Mutual funds and pension plans investing in Russian markets, commodities, and securities were seen as opportunistic. For many European countries, their dependence on Russian oil grew to 40% of total oil consumption. In essence, such consumption and investments are funding Russia’s current transgression into Ukraine.
This build-up to the moment we are now in calls for corporations to examine their stand on ESG. Not only what it may mean for their employees but also how they are viewed by their customers and shareholders. Having conducted ESG buyer insights research on three separate occasions in recent years, I can say that corporations struggle with treating ESG more like E-sg.
An important insight is many corporations lead with Environmental when talking about ESG. For instance, in in-depth executive interviews, it was common to hear, “we’ve made major steps towards being environmentally friendly. We’ve gone green so to speak in a lot of areas.” Overlooking the importance of Social and Governance in the ESG equation. At times equating ESG with only environmental sustainability.
Some are addressing social issues as we see a rise in DEI (Diversity, Equality, Inclusion) initiatives and positions within corporations. However, corporations are now finding themselves in the position of taking a serious stance when it comes to ESG. One that just a few weeks ago was unimaginable.
The stand I am referring to includes eliminating business ties with Russia on a wholesale scale. Do corporations pull all mutual fund and pension plan investments from Russia? Do those who are board members of Russian corporate entities resign? Do corporate entities in the European Union and the US withdraw from purchasing oil from Russia? Do corporations stop purchasing minerals and resources mined in Russia?
In other words, if customers and shareholders demand ESG accountability, are corporations willing to make the sacrifice it will mean? As of this writing, we are beginning to see some oil companies begin to respond. Shell and BP have decided to exit Russia because of the invasion. Additionally, we have seen major tech companies, like Apple, ban the sale of their products to and within Russia. Public pressure and those from customers as well as shareholders will call for further actions from corporations in many sectors.
In the future, it will not be just about Russia and Europe. The Russia-Ukraine conflict will eventually raise similar questions in other parts of the world. Most noticeably with respect to China. China’s record of human rights violations and threatening posture towards Taiwan will cause major corporations to determine as well as respond to their ESG stance. Employees, customers, and shareholders will become more vocal in their ESG demands.
The world will continue to go through a cataclysmic change. For many corporations, ESG will no longer be relegated to Environmental thinking only. The Russia -Ukraine war has just altered the 30-year uneasy trade-offs on a global scale. And awaken the global “s and g” of the ESG equation.
Corporations will need to respond to a new world order of business whereby they assess if their conduct of business with a foreign country enables as well as funds transgressions and human rights violations.