Although we talk about ESG programs all the time, they actually haven’t been with us for very long. ESG initiatives – or environmental, social, and governance – were first mentioned in the 2006 United Nations Principles for Responsible Investment (PRI) report. From there, the idea spread and is now on nearly every C-level agenda.
But does that mean any change is happening? No, it does not.
In fact, a series of recent events and news stories has me thinking that ESG is having a moment. It isn’t a doomsday moment, per se, but certainly one that should make us pause and reflect.
In this week’s episode of Dial P for Procurement, I highlight three stories that illustrate where the ESG movement is right now – and raise the question of where it is headed.
“Your Rainbow Logo Doesn’t Make You an Ally”
This article, written by Lily Zheng and published in the Harvard Business Review, is something I used to refer to regularly during my LinkedIn Creator Accelerator project focused on supplier diversity.
The piece calls out companies that make a show of supporting the LGBTQ community without actually supporting its members: “rainbow capitalism.”
Zheng asked, “How should brands show what they stand for in an authentic, meaningful, and accountable way?” and then went on to say “The rainbow logos are fragile façades of inclusivity hiding persistent inequality — and the truth will become clear sooner or later.”
Today’s consumers want to see the brands they support walk the talk on ESG issues, and many companies just aren’t outcome oriented enough.
But there are also always leaders… case in point: The Body Shop North America. They support LGBTQ causes all year (i.e. not just during Pride month) as part of their regular marketing efforts.
Interestingly, they are following classic marketing best practices. Know your target consumers/personas and why they would gravitate towards your offerings. Support causes and messaging that align with your brand identity and also hold value for those consumers.
The Body Shop has always identified their brand with social and environmental causes. They can lean in and incorporate those causes and values in their marketing without having to lean over so far that they fall down.
Most importantly of all, their oncoming commitment lends their brand an air of authenticity. That can’t be bought or earned overnight, and I imagine it would stand up to even Zheng’s scrutiny.
“The Rise and Fall of the Chief Diversity Officer”
On July 21st, the Wall Street Journal ran an article about the concerning trend away from retaining Chief Diversity Officers. Major companies like Netflix, Disney and Warner Bros. have recently seen the exit of their CDOs.
According to a study from Russell Reynolds, an executive search firm, In 2018, less than half of the companies in the S&P 500 had a CDO, but by 2022, 75 percent had at least created the position. Now that trend seems to be turning.
Analysis from employment data provider Live Data Technologies reveals that CDOs are experiencing a 40 percent higher rate of turnover than their counterparts in general Human Resources and nearly 30 percent of diversity-focused employees after 2020 have left the field altogether.
Jason Hanold, is the CEO of Hanold Associates Executive Search. His firm works with Fortune 100 companies and specializes in working with executive-level Human Resources and DEI talent. He told the WSJ that demand is currently the lowest he has seen in three decades of recruiting, adding that 60 percent of the diversity roles he is currently filling combine the CDO role with another position.
In his own share of the WSJ article, he added that “We have witnessed the rise of the CDO, and will be here when it elevates again, rebalanced with a likely emphasis on inclusion for all, to achieve a better essence of belonging for everyone.”
I have no doubt about that, but why should it have to be a cycle?
Change is hard – that goes without saying. Despite talking about the importance of workforce diversity, companies and hiring managers may have struggled to find candidates or change the search process to expand their talent pool.
And some of those challenges apply specifically to the CDO. Former CDO of Mass General Brigham Dani Monroe told the WSJ that many companies appointed diversity leaders by selecting people that belong to one or more diverse categories – but who did not necessarily have the requisite experience to be successful in the role.
That is a brave, bold and largely accurate statement in my experience… one that deserves to be addressed. It is also a very real challenge. Much like we see in procurement, there are not nearly as many experienced diversity officers as there were open positions in 2020. In a way, everyone was unqualified.
Now CDOs, many of whom are women and/or people of color, must be questioning their decision to leave other roles and career paths for DEI – especially if companies aren’t committed to the mission.
ESG Investing: A Failure in the Making?
You’ll have to listen to the podcast episode of Dial P for the third story, involving BlackRock CEO Larry Fink, but I’ll wrap this article with another third piece – by Sachin Kumar Sharma, an Expert Advisor in BCG’s energy practice in his LinkedIn Newsletter: IndustriaNX.
He directly addressed the difference between looking good and doing good as part of ESG investing. I believe his points and questions apply to corporate ESG programs as well.
“The ESG movement is becoming increasingly insular,” he writes. “There is a small group of people who are setting the ESG agenda, and there is little room for new ideas or dissenting opinions.”
Here is how I interpret that: people are afraid of being ridiculed or canceled for asking tough questions that might make the ESG movement more effective. That is the ultimate performative insult to all of the causes and communities ESG has the potential to reach. If we can’t even talk about it, we might as well give up right now.
I often say that nothing that is real is simple and nothing that is simple is real. Well, nothing that is performative drives outcomes, and that isn’t real either.
We’re clearly in a moment of some kind in the ESG movement. I’m always the first to admit that I don’t have the answers, however, if we don’t evolve our thinking… and, more importantly, amend our actions, a lot of opportunity and credibility will be lost. And we will have almost nothing to show for it.