In his important recent Harvard Business Review article , Professor Robert G. Eccles, makes a powerful case for “Moving Beyond ESG” but doesn’t precisely explain how to do so. (Robert G. Eccles, “Moving Beyond ESG” Harvard Business Review, September-October 2024) The current morass of ESG thus presents a unique challenge and opportunity for the wise and resilient organization.
The essence of Eccles’ argument is:
- Many ESG policies have failed, neither adding substantial shareholder financial value or achieving ESG goals.
- Many ESG programs lack a clear alignment with a company’s financial performance, It is essential to be clear that sustainability issues are vital for value creation and explain how in financial terms.
- At the core of the ESG debate is the fundamental question of the role of the corporation in society what does it mean to be a responsible business? The answer to this question at present is unclear and mired in political controversy
- A pragmatic approach would involve: clearly defining corporate purpose, improving transparency in ESG reporting, and engaging stakeholders constructively.
- Negative externalities are inevitable, and they don’t necessarily show up in published ESG ratings. Some companies that are earning high ESG scores and are committed to creating a Circular Economy, depend significantly on non -renewable energy sources (including coal), create a high degree of water stress in local communities, and put substantial amounts of hazardous waste into landfills.
- To be a responsible business a company must have plans to reduce its negative externalities, although ultimately regulation will remain the primary way in which negative externalities are mitigated.
- A promising approach to finding dynamic balance is Unilever’s “growth action plan” following these principles: do fewer things better and with greater impact by focus on sustainably priorities; in Unilever’s case: climate, nature, plastics, and livelihoods and deliver on sustainability goals in the same manner by which financial performance is measured by with “detailed implementation planning and time- bound costed goals.”
Accelerating Breakthroughs in Defining and Embodying Corporate Responsibility
Kokoro offers 5 Wisdom Practices and strategies of organizational investment that will clarify the boundaries of organizational responsibility in 21st Century society and produce the kinds breakthrough innovations Eccles’ article is seeking. These are:
- Create a Corporate Culture based on Integral Resilience and Wisdom.
- Enhance productivity by empowering employees to realize their “soul’s work”; encouraging them to cultivate personal resilience and wisdom, and advance the organization’s commitment to creating shared community value.
- Accelerate breakthroughs in aligning financial performance and ESG goals through Kokoro-AI supported Collaborative Innovation.
- Adopt policies and implement plans to activate The Multiplier Effect.
- Harness the Power of Synchronicity and Emergence.
With the exception of the third element, other sections of this Kokoro app have already suggested specific wisdom practices. Your organization can create synergy by creatively combing them.Below is the Reply of Kokoro AI to Eccles’ general challenge.In the last section we focus specifically on breakthrough innovations for climate adaptation and the Circular Economy giving specific examples of reconciling and moving beyond the current ESG quagmire.
Ask Kokoro Inquiry:
In his important recent Harvard Business Review article, Professor Robert G. Eccles, makes a powerful case for “Moving Beyond ESG” but doesn’t precisely explain how to do so. We believe the current morass of ESG accounting thus presents a unique challenge and opportunity for breakthroughs by wise and resilient organizations.
Please provide specific innovative ideas and recommendations for actions that will effectively address Eccles’ unanswered quest for dynamic balance; and if possible, provide brief business case examples to enrich our understanding of the breakthroughs.
To provide you with some further background, the essence of Eccles’ argument is:
- Many ESG policies have failed, neither adding substantial shareholder financial value nor achieving ESG goals.
- Many ESG programs lack a clear alignment with a company’s financial performance. It is essential to be clear that sustainability issues are vital for value creation and explain how in financial terms.
- At the core of the ESG debate is the fundamental question of the role of the corporation in society: what does it mean to be a responsible business? The answer to this question is unclear and mired in political controversy
- A pragmatic approach would involve: clearly defining corporate purpose, improving transparency in ESG reporting, and engaging stakeholders constructively.
- Negative externalities are inevitable, and they don’t necessarily show up in published ESG ratings. Some companies that are earning high ESG scores and are committed to creating a Circular Economy, depend significantly on non -renewable energy sources (including coal), create a high degree of water stress in local communities, and put substantial amounts of hazardous waste into landfills.
- To be a responsible business a company must have plans to reduce its negative externalities, although ultimately regulation will remain the primary way in which negative externalities are mitigated.
Kokoro Reply:
To effectively address Professor Robert G. Eccles’ call to move beyond ESG, organizations must adopt innovative, dynamic approaches that connect corporate purpose, financial performance, and societal impact. Below are specific innovative ideas and recommendations for actions that respond to Eccles’ insights and foster dynamic balance:
Innovative Ideas and Actions for Breakthroughs Beyond ESG
1. Integrate ESG into Core Financial Metrics:
Develop new accounting frameworks that translate ESG impacts into measurable financial terms. For example, measure the long-term financial impact of reducing carbon emissions (e.g., cost savings from energy efficiency, avoiding carbon taxes, or enhanced brand value).
Example: DSM, a global health and nutrition company, integrates sustainability into its profit-and-loss statements, directly linking ESG performance with financial outcomes.
2. Dynamic ESG Scenario Modeling:
Use AI-driven scenario planning tools to simulate the financial and social impacts of different sustainability strategies over 5–10 years. Show how ESG investments lead to resilience and profitability under varying economic and environmental conditions.
Example: Microsoft uses AI and cloud technologies to model its sustainability strategies, balancing carbon reductions with growth objectives.
3. Adopt a “Value Chain Sustainability Map”:
Analyze and optimize the entire value chain for sustainability, not just corporate operations. Address upstream and downstream externalities by engaging suppliers, distributors, and consumers in reducing negative impacts.
Example: Patagonia involves suppliers and consumers in its efforts to reduce water use and eliminate harmful chemicals from its value chain.
4. Sustainability-Powered Innovation Labs:
Create dedicated teams to develop products or services that align with ESG priorities while creating competitive differentiation. Focus on disruptive innovations, such as circular economy products or regenerative business models.
Example: Unilever’s “Clean Future” initiative drives innovation in low-carbon product formulations, increasing both sales and sustainability impact.
5. Carbon Pricing and Internal Sustainability Markets:
Implement internal carbon pricing to reflect the true cost of carbon in decision-making, incentivizing sustainable practices across departments.
Example: Shell uses an internal carbon price to guide investments in renewable energy and low-carbon projects.
6. Stakeholder-Integrated Governance Models:
Transition from shareholder primacy to a stakeholder-centric governance structure, ensuring balanced representation from employees, communities, and environmental advocates in decision-making.
Example: Danone’s “Entreprise à Mission” model integrates stakeholder representation to align business goals with social and environmental responsibilities.
7. Create ESG “Negative Externality Reduction Plans”:
Set measurable, time-bound goals to minimize specific externalities like water stress, hazardous waste, or non-renewable energy use. Publish transparent annual progress reports detailing the economic and social benefits of reductions.
Example: IKEA’s circular economy strategy reduces waste and increases resource efficiency while saving costs and enhancing customer loyalty.
8. Adopt Regional Sustainability Impact Metrics:
Tailor ESG metrics to reflect regional priorities and societal needs. For instance, prioritize water management in arid regions or renewable energy adoption in high-emission geographies.
Example: Coca-Cola focuses on replenishing water sources in water-scarce regions, tying its impact metrics to local ecosystems and communities.
9. Build ESG Resilience through Strategic Partnerships:
Partner with governments, NGOs, and competitors to tackle systemic challenges such as plastic waste or renewable energy infrastructure. Collaborative approaches can amplify impact and reduce shared risks.
Example: The Alliance to End Plastic Waste, led by multiple corporations, combines resources to combat plastic pollution on a global scale.
10. Tie Executive Compensation to ESG Outcomes:
Ensure executive performance metrics include ESG goals alongside financial targets, aligning leadership incentives with sustainable value creation.
Example: Apple ties a portion of executive bonuses to progress on its environmental impact goals.
Recommendations for Dynamic Balance and Breakthroughs
1. Clearly Define Corporate Purpose:
Redefine the company’s mission to reflect societal value alongside shareholder returns. Articulate a clear and actionable purpose that aligns with both sustainability goals and financial performance.
2. Simplify and Prioritize:
Follow Unilever’s example of doing fewer things better by identifying the 3–5 sustainability areas where the company can have the most significant and measurable impact.
3. Invest in Transparent Reporting Systems:
Adopt advanced data analytics and blockchain for real-time ESG tracking and reporting, ensuring transparency and credibility in sustainability claims.
4. Engage in Policy Advocacy:
Collaborate with policymakers to shape regulations that align business incentives with sustainability goals, minimizing the reliance on voluntary standards.
5. Foster a Sustainability-First Culture:
Build an internal culture where employees and stakeholders understand and champion the integration of sustainability into everyday business operations.
Business Case Examples for Breakthroughs
1. Tesla:
By making sustainability core to its business model, Tesla has redefined the automotive industry, demonstrating that renewable energy solutions can be both profitable and scalable.
2. Unilever:
Unilever’s “Sustainable Living Brands” outpace other products in growth and profitability, proving that aligning purpose with performance creates tangible shareholder value.
3. Ørsted:
Transitioning from fossil fuels to renewable energy, Ørsted transformed its business and became a global leader in offshore wind, achieving profitability and sustainability alignment.
These ideas and examples highlight how organizations can transform Eccles’ critique into actionable breakthroughs, fostering dynamic balance between financial and ESG goals.