Awareness, Action, and Window dressing

With regard to ESG, companies can lean towards green bashing or green washing. This is also true for individuals and even true for ESG professionals. We explore this topic today.

When it comes to the reporting of Environmental, Social and Governance (ESG) impacts and risks, companies can display a range of positions which go from strong green washing to vehement green bashing, and all shades of green in between.

As the ESG topic and related issues become popular, more information becomes accessible and historical data reveals commitments (or not), the sincerity of companies' promises become more apparent to the rest of the world. This is obviously a fact for large public companies, which are at the center of attention, and it becomes also part of SMEs which now have to take the lead in their own category, or choose to be left behind.

What may not appear so clear is that companies are no different from the opinions of their management, shareholders and other stakeholders. Hence the same patterns emerge for individuals, and actually originate from individuals. More strangely, and certainly to a lesser extent, these patterns are also visible within the ESG profession itself, and relate more to human psychology that any inherent controversial questions from the topic itself.

Companies, green washing and green bashing.

When new regulations are put in place. It is not always a surprise to see companies' managers feeling threatened, especially when these regulations impact significantly their business model, and their profit. Typical topics in ESG are the following:

Environmental (E)	Social (S)	Governance (G)
Carbon footprint (Scopes 1, 2 and 3) Climate change Energy consumption Other pollution Waste and wastewater Renewable energies Biodiversity	Human rights Labor management Health and safety Diversity Supply chain standards Human capital development Communities	Corporate Governance Corruption and instability Executive compensation Shareholder rights Board diversity Business ethics

Hence we easily understand that a company operating without care for the environment, or its workers' safety, its surrounding communities' health, or not behaving in an ethical way... can potentially feel endangered by new regulations as behaving in a sustainable manner has a cost. This is particularly more pronounced when the vision of this company is short-term oriented, with a desire for quick profit and a denial of responsibility for future generations. On the other hand, one does not need to be an expert in ESG to be concerned by some of these topics, have opinions and knowledge on them, and have solutions to offer.

The reaction of a company to the new regulations, or the "threat" of it, can be quite well summarized on a two dimensional plane made up from two variables: the awareness of the risk (AR), and the willingness to act (WA). Obviously, it is almost impossible nowadays to say that you have not heard about climate change and that you don't know about social and governance issues, including when you are a company. But this is the awareness of the company's management, or a subset of its workforce which matters here. Hence a company not aware of the risk represented by ESG is more accurately described as a company not accepting the reality of ESG-related issues, or a company considering it too difficult a topic. The point is, it relates more to a question of acceptation than a question of real awareness. As for the willingness to act, it should similarly distinguish a genuine willingness for action, hence almost certainly followed by material decisions leading to noticeable transformations, from a lack of willingness which is often observed when there was no barrier to action but no apparent changes.

Having this in mind, we get four categories emerging from the product of these two variables and that can describe the position of companies:

	Not willing to act	Willing to act
ESG Aware	Green washing: the company knows ESG issues are important, but would rather bring the focus on immaterial parts of its negative impacts and improve them to "look good", rather than tackling real material impacts.	ESG-Enlightened: the company is aware of the impacts and risks relating to ESG and decides to act on them, being for considerations of contributing to a greater good, helping others, seizing opportunities, etc.
ESG Ignorant	Business-as-usual: the company is not aware of ESG issues, considers it a fleeting topic, or does not accept it. Hence it does not see any reason to act on it in the current context.	Green bashing: the company does not accept ESG issues and considers them a threat. Hence it actively criticizes and lobbies against it to avoid changes in its industry.

These four distinct categories can certainly have some overlap, as companies are never completely ignorant or aware of ESG, and never completely willing or not willing to act. Strategic positioning plays a role. Also, companies can evolve in this matrix over time. For example, we can fairly imagine green washing to be the first step before being an ESG-enlightened company, as it is easier and faster to acknowledge ESG issues than really tackling them, despite good intentions. Hence, in order to not depart from the crowd or just prepare for more significant actions, a company can temporarily be in a green washing stage, hire competent staff to ramp up solutions, and evolve smoothly towards a real transition.

Green bashing is more problematic. As the company takes a position against ESG, and it is likely to be more difficult for management to come back on this decision, and admit wrong doing. However, this is not impossible, and management can change or get renewed. The main problem with green bashing is the impact it has on a sector, on regulations, and the delays it imposes on progress of societies, with tragic consequences that go along. Companies engaged in green bashing often associate ESG issues with political agendas, while this agenda is often only present in their perception of the issues. If some topic should reach beyond political differences and nationalistic considerations, these are really topics like climate change, human rights, and anti-corruption laws, among others.

Individuals, fake enthusiasm and skepticism

When it comes to ESG considerations at an individual level, it is often harder to convince people that the topic is not political. Indeed, governance issues often relate to socioeconomic models which have profound implication in our lives and society. This is maybe even more true for social issues represented in the second pillar of ESG, where numerous topics directly relate to social models and development, on which many individuals have different views. Much more strangely, and maybe because of associations between environmental groups and political parties, environmental issues have also been considered by some as a political positioning. Will floods impact less any side of the political spectrum?

Certainly some topics of ESG have their share of political nuances which cannot be neglected. There can't be a single solution to ESG issues. Nevertheless, the most important issues should easily go over political divisions. Who can really consider, in full honesty, that CO2 emissions and the threat they represent through climate change has anything to do with political beliefs? Who considers that child labor, in any part of the world, is just a question of political and economic preference? Who would dare to say that corruption is an acceptable alternative to companies acting within regulatory frameworks? Obviously, if some parts of the vast ESG spectrum can be debated, there should not be this much difficulty to find agreement on the fundamental views that every humans societies have in common.

Unfortunately, not every individual is consistent with respect to this. ESG topics, like other ideas, are often considered a package, and people either accept it all or reject it entirely. This should not be the case. Even if this is deplorable, this leads to the following behaviors, similar to companies, at the individual level:

	Not willing to act	Willing to act
ESG Aware	False enthusiast or lecturer: the individual knows ESG issues are important, but would rather pretend he/she cares or lecture others about the importance of acting rather than acting him/herself.	ESG-Enlightened: the individual is aware of the impacts and risks relating to ESG and decides to act on it, being for considerations of contributing to a greater good, helping others, seizing opportunities, etc.
ESG Ignorant	Conservative: the individual is not aware of ESG issues, considers it a fleeting topic, or does not accept it. Hence he/she does not see any reason to act on it.	Climate skeptic or cynic: the individual does not accept ESG issues and considers it a threat. Hence he/she actively criticizes and lobbies against changes in its industry.

One often finds conservative people in the business-as-usual category of companies. Interestingly, this category can also include people who think they are aware of what is going on in the world, but rely too heavily on historical facts while some topics such as climate change and their risks do not have historical records allowing a direct evaluation, could manifest as black swan events, or appear after tipping points are crossed. Hence these individuals often believe that ESG activists are alarmist people while the future will be no different from what "it has always been". Unfortunately, the weekly news do not tell the same story, insurance companies crunch massive datasets and do not see the same story, climate scientists run millions of simulations and do not see the same story... since decades.

As previously discussed in a post on climate skepticism and climate cynicism, some individuals refuse to accept the importance of ESG, including climate change and human rights. As personal history plays an important role in values and beliefs, it may be difficult to generalize here. Nevertheless, it is possible to imagine that part of this population is denying the reality of ESG risks due to fear and paralysis. Despite the fact that climate skepticism and cynicism have been classified here as "willingness to act", it shares some commonalities with the fake enthusiast or lecturer profile as it often consists in speaking rather than really acting on any problem. Hence, we could distinguish between the skeptic or cynic who speaks against ESG to better ignore its reality and feel no need to act, and a real opposition which consists in organized harmful actions to discredit the topic of ESG.

ESG professionals, and to some extent the same pattern.

Contemplating all the climate skepticism and cynicism that ESG advocates have to face, one could believe that all ESG professionals are not only aware of the risks involved, but also willing to act. This is generally true at the level of interest, career choices, and a large set of values that relate to the different pillars of ESG. ESG professionals care about their ESG. Nevertheless, and as already mentioned, ESG is made of numerous and diverse topics on which it is not necessary to adhere in totality. ESG has never been a single word, but three words glued together. The three pillars are describing very different topics, though related, and one can have opinion and preferences for some than others. However, a professional should have an expertise and, for that reason, an educated judgement which avoids misconceptions and bring coherence in beliefs. So why would ESG professionals not be all ESG-enlightened and all belong to the top-right corner?

Well, because with great power comes great responsibility (thanks Spider-Man). The fact that ESG professionals are more educated on the topic does not necessarily lead to action. In fact, though we would not call an ESG expert any individual belonging to the conservative or climate skeptic categories (though there are a few turning cynical after a while), we do wrongly call ESG experts some professionals that are false enthusiasts and lecturers. These professionals have knowledge about ESG and are able to articulate communications on ESG topics, and they can easily appear as references in the field to non-experts. But one should remember a fundamental aspect of ESG:

Not only ESG calls for action, but it calls for problem-solvers to be the actors of mitigation and adaptation.

Due to a lack of experts to meet the demand, opportunistic considerations, or possibly other reasons, the ESG community often employs individuals who are not problem solvers, either in skills or mindset. This is probably also why ESG related jobs do not attract the most technically capable profiles, with the fact that the field is still nascent. ESG data used to be sparse and showing poor in quality, and experts with the ability of processing data may not have been so much necessary at that time. But now, the profession has changed. One cannot call an ESG expert someone who is not able, even less not willing, to use data to tackle ESG issues. ESG is not about identifying problems anymore, it is about solutions lead by capable people, with the support of non-technical professionals and not the other way around.

Conclusions

Let's recap. There are conservative individuals and skeptics, there is green bashing and green washing made by some companies, there are even people and companies who keep on living their existence as if nothing is happening. We do not need to bring historical events where only a few individuals saw the problems coming, and all the rest of the crowd was ignorant of the risk coming. The good news is that when it comes to climate change, maintaining a position of ignorance is becoming really hard to justify.

Even a skeptic position is getting harder to justify, this is why we can see a rise in green washing. Is it a negative thing? Probably not, as it is better to do green washing than green bashing. A company going some green washing will end up hiring for positions relating to ESG, and we can expect that a majority of people accepting these roles will end up look for real solutions towards action, leading their business towards sustainability and new sources of profit. With these developments comes a necessary shift of ESG professionals who were first employed to educate, to real problem solvers who are the needed roles for bringing the action that gives all its meaning to ESG. Companies, hire the technical people to solve your ESG issues, not the people who just know how to articulate about the issues.