Delivering Measurable Social Impact through the Environmental Social and Governance (ESG) movement
Jason Miklian, from the University of Oslo, joins us as part of our blog series looking at Business for Peace and what this scholarship can teach us in terms of delivering measurable social impact through ESG
This Blog series follows a workshop hosted by the School for Business and Society at the University of York in conjunction with the Interdisciplinary Global Development Centre. Jason Miklian from the University of Oslo joins us in this blog to look at Delivering Measurable Social Impact through ESG: What the Business For Peace Scholarship Teaches Us
After a decade of rapid expansion, the Environmental, Social and Governance (ESG) movement has reached an inflection point. Most large firms worldwide have incorporated ESG principles, and $18 trillion in global assets are ESG-aligned, but a backlash has exploded. Republicans in the USA plan to relentlessly attack ESG and 'woke investing' throughout 2023. The Economist suggested dismantling the ESG paradigm altogether, leveraging well-known critiques (the 'S' and 'G' pillars are difficult and often don't deliver direct financial benefit) to suggest that firms should simply focus on environmental issues.
While this might appeal to managers intimidated by the challenges of ESG adoption, the advice rings hollow in a world where shareholders, employees and consumers demand that businesses operate within our interconnected social world, as, well, the Economist itself suggested. This isn't to pick on one magazine's apparent contradictions about a complex topic, but a reflection that ESG has grown so all-encompassing in the corporate world that contradictions abound no matter which position one takes.
One such paradox lies in the beneficial but often awkward corporate relationship to democracy, especially democracy promotion abroad. Firms recognize their role in social responsibility and human rights, yet few contribute to the activity that has the highest correlation to societal stability: the strengthening of democracy. But when Russia invaded Ukraine in February 2022, a host of multinational companies took action in a surprising way. They went beyond the minimum required by sanctions and shuttered operations in Russia, at significant short- and long-term cost. Many coupled these actions with strong statements in support of Ukraine and global democracy.
Yet, most of the global firms that withdrew from Russia continue to operate in, or source from, other authoritarian and human rights-abusing states. Many firms feared that such hypocrisy would be exposed, yet few had an established plan for when to remain and when to leave. In short, they hadn't yet done a re-think on what a firm's conditions for doing business in such states should be, and if doing business in non-democracies was compatible with their values. Beyond re-shaping our conceptions of 'social impact', and 'social responsibility' for business-society relationships, it required firms to ask themselves: If democracy and human rights in Ukraine matter to us, why don't these principles matter to us everywhere?
In their quest to deliver empirically positive social impact (the "S" in ESG), contradictions like these make social and political corporate action decision-making difficult. Lessons from Business and Peace (BaP) scholarship can offer a way forward. BaP scholars have long studied businesses succeeding or failing in some of the world's most complex environments, where the impact of corporate social decisions are amplified. In such spaces, firms that harness the power of community to deliver truly positive social impact are more successful and crisis resilient than their peers.
For example, social activities must be multi-pronged, as social improvement frameworks - and broader peace and governance societal dynamics - all interlock. It's common for firms attempting to improve social impact to focus on a single activity, like funding a hospital or school, believing that social benefit can be disaggregated. However, this can be a recipe for social ineffectiveness and a weaker long-term bottom line. BaP findings show how firms that take more holistic systems approaches to societal impact, especially in challenging locations, can deliver more effective social programs and more inclusive positive growth.
In addition, we can improve "S" impact not by expanding, but by limiting activities to those where we have strong evidence, including reducing horizontal inequalities and limiting corruption. Democracy promotion is more challenging, as direct democratization aid can increase conflict in the most fragile settings as disadvantaged groups become empowered and challenge elite political structures. More fundamentally, as businesses act like aid and development service providers, they should consider the broader societal consequences of their "good" actions beyond direct beneficiaries. These approaches enable firms to break through the deadlock of contradictory approaches in different countries by focusing on more pinpoint action as opposed to vague and generic statements of support that play well in annual reports but can be nearly impossible to operationalize globally.
With ESG assets projected to leap to nearly $34 trillion by 2026, it is imperative to incorporate social effectiveness research to ensure that these vast sums that promise to 'do good' can deliver on that promise. Refining the scope of 'S' to concrete initiatives allows firms to reduce their perceived and actual contradictions in social initiatives, in turn making it easier to elevate (and assess) ‘S’ in ESG. And perhaps most important, they will allow businesses and investors to improve their bottom line while reducing the likelihood that they inadvertently become part of the problem.
Other Blogs in the Series:
Blog#1: New Developments in Business for Peace and the Role of Companies in War Zones by Chris Williams
Blog#2: Leading Organisations in and after Violent Conflict by Joanne Murphy
More blogs coming soon…
Jason Miklian is a Senior Researcher in business, peacebuilding and sustainable development at the Centre for Development and the Environment (University of Oslo, Norway) and fellow at the Political Science department, Universidad de los Andes (Bogotá, Colombia).