The State of ESG: Corporate Sustainability Inc: friend or foe?

Amid all the critique, we have to understand theory of change and corporate capture

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This is the second in a series of articles looking at The State of ESG, which will also be the focus of a panel at the forthcoming RI Europe conference, June 14-18

Ever since Blackrock’s former head of sustainable investing, Tariq Fancy, wrote an article last month criticising sustainable finance, the floodgates have opened on critiques of corporate sustainability writ large. 

An industry-wide auto-immune reaction has been triggered, with former sustainability professionals accusing ‘Sustainability Inc.’ of being “oversold” and even “complicit” in the destruction of social and environmental value.

The articles all raise some excellent points, and the underlying theme of them all is on-point; notably that it is high time for governments to legislate this stuff.  However, without wanting to add more swelling to the reaction, I do think it’s worth mentioning that this line of reasoning ignores two principles that are core to understanding the global sustainability movement.

Theory of Change (a methodology to define long-term goals and then map backward to identify necessary preconditions): Broad-scale economic and social transformations do not and can not happen in a vacuum.  There is a sequential interplay of actors that drives system-wide change, which might be summarised (simplistically) as follows:

1. There is a problem.

2. NGOs and activists bring attention to it.

3. Consumers and employees are made aware of it and speak out.

4. A handful of firms (corporate or financial institutions) experiment with some action on the issue (reporting, engagement, new processes, etc.), either because they are targeted by campaigns directly or because they see some kind of long-term strategic advantage to being a first mover.

5. These companies draw others together into a larger coalition, so as not to be at a short-term competitive disadvantage from the investment they make in better practices.

6. Independent standard-setting bodies draw up common principles, reporting frameworks, etc. to convert these practices into a “market standard”.

7. Once the market standard is adopted by a large enough swath of the private sector, governments step in to make the practices mandatory for all actors.

The first point here is that in modern capitalism the “end game” is – and always has been – market-wide regulation. The second point is that one can’t jump directly from Step 1 to Step 7.  ‘Sustainability Inc.’, the driving force behind Step 4, is one link in this chain; no stronger or weaker than the others, just part of the process.

Corporate Capture (a phenomenon where private industry uses its political influence to take control of the decision-making apparatus of the state, such as regulatory agencies, law enforcement entities, and legislatures): The founding of ‘Sustainability Inc.’ coincided with the rise of globalization, deregulation, and all things ‘Davos’. Multinationals were generating revenues larger than the GDP of the nation states in which they were operating, and the idea behind the rise in sustainability (or Corporate Social Responsibility (CSR) as it was called) was the cliché that “with great power, comes great responsibility”.  

In practice, this shift in the balance of power meant that it was – and still is – much more difficult for governments to regulate without support from the private sector.  In other words, the likelihood of regulators leapfrogging from Step 1 to Step 7 is close to nil.

The ‘Sustainability Inc.’ practitioners that I know and work with, certainly here in Europe, understand well these two principles: that is, they are very cognizant both of the system they are working within and of their role within it. They are realists with no illusions about corporations “saving the world”, but they have a sanguine understanding of why the world can’t be changed without them. 

Alice Steenland is Chief Sustainability Officer at Dassault Systèmes