Businesses are responding to growing environmental regulation; if not, they are being questioned by investors and customers. What is ESG and why is it important? Charlie Grubb and Stephen Mill, Managing Director and president in Executive Search practice at Robert Half, look at what ESG is and why it is important for CEOs to understand in the context of digital transformation, and where to find specialist skills.
Imagine a clothing brand aimed at customers between the ages of 16 and 25; an ecommerce leader growing quickly under private ownership. The business has been coming under pressure to improve its environmental reporting, and relationships with suppliers. Public ownership beckons, but only if it can prove to investors – and increasingly, customers – it can change.
This story is familiar because many businesses with digital capability are getting to grips with environmental, social and governance (ESG). What is ESG and why is it important? Executive leaders are keen to understand how to measure their impact, and the operational skills to make the transition a success. That’s why ESG is important for CEOs, and digital transformation will be a key part of the journey.
So, what should CEOs do first? Ask themselves what ESG is and why it’s important to their business. If they can answer this question, honestly, it will be easier to talk about and include in a strategy. Second, they need to consider the drivers of change. What ESG regulations are in place? How can these be a springboard to do more? Are there examples of best practice? In addition, how will ESG attract employees, customers and investors? The younger generations are environmentally conscious, but everyone needs to buy in. Certain investors will turn the other way if ESG isn’t on the agenda.
It will be important for CEOs to explore what technology providers and thinkers are saying about ESG in the clothing industry. Then it’s about setting a vision and communicating that through the business, explaining ESG’s impact, and why it makes sense. And, of course, they’ll want to make sure the money is there to fund digital platforms and new skills.
We aren’t seeing a move towards dedicated ESG staff yet, but businesses will need both data and sustainability professionals. Some are gravitating towards large consulting firms for help. Others have realised there are specialists which have been working in this area for decades; many of these have developed quantifiable ways of measuring emissions and recording data.
It’s also worth considering that any oil and gas, mining, or infrastructure business, has been dealing with environmental regulation for decades. They know how to work with multiple stakeholders – from communities to investors and customers – which is vital when working on these issues. Internal ESG talent does exist, but it won’t be directly available in every industry. Our clothing business might have to recruit from another sector and apply this knowledge in a new context.
A key focus for CEOs will be understanding how technology interacts with the core processes of a business. In the manufacturing of clothes, for example, where is the waste in the process? How does that waste meet current legislation? What can be done to reduce it? Once clothes are being transported to retail, then it’s about understanding and measuring the carbon footprint, and the potential transition to electrified fleets.
In each case, how technology measures outputs, and interpreting the results, will be pivotal. That means a chief technology officer with a seat at the board table; someone who can translate the work of sustainability professionals and data scientists, to the CEO.
In our example, the clothing brand is well placed to navigate the ESG transition because it is already adept at digital transformation. But importantly, it will need people with ESG skills to help it make sense of the data, and deal with the prospect of increasing regulation. While public ownership will bring new disclosure demands, customers and employees will also make their voices heard, if they don’t see progress.
Over the next ten years, navigating the relationship between digital transformation and ESG, will strengthen businesses. And this will require a generation of c-suite leaders who understand both and can build the right teams to help them. That’s why ESG is important for CEOs now in the context of digital transformation.
Charlie Grubb is Managing Director for Executive Search in the UK
Stephen Mill is Managing Director for Executive Search in Canada
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