Culture Insights – Edition 2: ‘Why an ESG strategy is critical for a ‘future-proof’ corporation’

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The second edition of Culture Insights, a new video podcast series from Hofstede Insights India addressed a challenge many large organizations are confronted with. Culture Insights will explore evolving trends and the multiple facets of Organizational Culture. At Hofstede Insights we are focused on aligning Organizational Culture with Business Strategy and Purpose.  The second edition featured Akhilesh Mandal (Managing Director India, Hofstede Insights) in conversation with Bhaskar Pramanik (Former Chairman Microsoft India / Former Independent Director – SBI / Independent Director & Advisory Board Member). Bhaskar is a veteran industry leader with four decades of experience and sits on multiple boards. He advises organizations and leaders and is passionate about ESG that is becoming an integral element in future business strategies of Corporates across the world. Bhaskar is one of India’s ESG experts and in this insightful tete-a-tete, Bhaskar and Akhilesh discuss the significance of ESG and its interlinkage with Organizational Culture.  Even before we bring you the excerpts from this insightful tete-a-tete, let’s define Organizational culture and bring you up to speed with ESG.

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ESG defined:

Not long ago, ESG was just a buzzword, investors looked at it as a ‘good to have’. Not anymore. A 2019 survey by Morgan Stanley confirmed that ESG investing is becoming increasingly popular.  More than 8 in 10 U.S. individual investors (85%) now express interest in sustainable investing, while half take part in at least one sustainable investing activity. ESG is Environmental, Social and Governance (Corporate Governance). A growing number of Socially responsible investors are now looking at the ESG factor of their investments and no longer just the classic risk vs. return scenarios for future investments.

ESG components

ESG combines Environmental, Social and Governance factors. Environment includes everything from a company’s attitude towards climate change to the company’s use of renewable energy and how it manages waste. In certain cases it also involves direct environmental impact from a company’s operations such as deforestation or water management. The key area under the Social part of ESG is employee relations. For e.g.: do you pay your employees a fair wage or do you provide employees amenities like a cafeteria or a childcare centre on site. Diversity and inclusion are also under the scanner of many investors. Governance relates to the company’s management and how they respond to the interests of the external stakeholders like consumers and the wider community where your manufacturing facility or Corporate HQ is located. In many cases a strong and vibrant organisational culture improves a company’s ESG evaluation.

When investors look at social criteria, they're interested in how a company manages its relationships with employees, suppliers, customers, and communities where it operates.

For example, investors may look at whether a company provides a safe and healthy working environment for its employees, or if it donates time, money, or resources to give back to the communities where it operates.

Unsafe working conditions or a disregard for community or customer concerns are tangible risks for many companies. On the flip side, companies that treat employees well and give back to society are seen as less risky.

What is organizational culture

Organizational culture is the way in which people in an organization relate to each other, their work and the outside world, in comparison with other organizations. Your Organizational Culture shows how your organization works: how to things get done, the interactions between people, and employee relationships to their work and the outside world. The best organizations often place equal emphasis on strategy and culture. Such organizations create a culture that motivates their teams. Organizational Culture is what differentiates your business, so it is important to know the various factors that contribute to your company’s culture.

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The pandemic might have been the key catalyst for ESG

The COVID-19 induced pandemic might have been the catalyst but ESG has also come to the fore because of challenges like climate change and environmental challenges that organizations across the world are grappling with. Companies now realise it’s important to embed ESG into the strategy of the company. The other driver for ESG in India, is the Indian government’s mandate to the top 1000 listed companies in India to report on their ESG initiatives.

“If your sole purpose is profit you will struggle to create an agile and resilient business”

Bhaskar believes that it’s compliance – especially given the government’s ESG directive, that’s driving ESG in India currently but there are many leaders who have gone beyond just compliance. “There are many leaders of the pack who have embraced sustainability as part of their overall strategy. At least 20% of large and small companies have focused on governance and used CSR from a social perspective to meet their social requirements”. From environmentally conscious consumers to investors to employees all stakeholders are gradually driving companies to move on from just compliance requirements to ensuring it’s part of their overall strategy.

Is this an opportunity for organizations to re-evaluate their purpose?

Companies are relooking at their purpose. What is the difference between purpose and vision/mission? While mission/vision is your inward perception about yourself,  purpose is how the external world perceives you or how you would like external stakeholders to perceive you.  Purpose revolves around what you can contribute to the world and what the world will miss out if you’re not there. “I’ve seen a lot of companies redefine their purpose over the last 4-5 years. For instance Reckitt Benckiser went from being a product company to a company that is committed a cleaner and healthier world thanks to the foresight and leadership of their new CEO. It’s opened up a whole new opportunity for the company. Their focus is now to ensure that their customers take the best possible care of themselves”.

ESG has to be built into the ‘Operating System’ of the Company

It all starts with the ‘Product Strategy’ of the company that includes everything from choosing the products you will manufacture and the services you will offer. You then have to look at your People and Culture; your teams have to understand your ESG strategy, what needs to be done. The key element here is ‘collaborative engagement’ – it’s what people do without being told. It has to be instinctive. These initiatives have to be reinforced with performance metrics; it's important to establish whether employees achieve their ESG goals too. It has to be inbuilt into processes. Environment is a critical element – for instance should you only work with vendors who are also conscious of their ESG goals  or should you choose vendors who give you the cheapest prices without concern for the environment? Ultimately it’s important how you position yourself.

Millennials and Gen Z audiences – whether they are your employees or consumers, are much more conscious about sustainability and governance. It’s all part of a big ESG ecosystem.

ESG has evolved into a massive ecosystem. There are the ‘Big Four’ accounting companies that can help you identify the areas that align with your strategy and develop the metrics. You also have the management consulting companies that can help you identify your strategy and areas you hadn’t though about; Blue sky thinking that could determine changes in your product portfolio. There are also boutique companies that can help you with reporting. This ecosystem also includes financial companies that can help with the right investments and also help with carbon offsets. While Industry Associations and regulatory bodies help organizations in transparency with their stakeholders.

Culture requires continuous attention and care.

Success of any strategy or approach is a combination of culture that leads to collaborative engagement and the science of execution. As demographics change, leadership behaviour plays a significant role in creating and sustaining a culture. Bhaskar believes that organizations like Hofstede Insights have a key role in influencing companies that are embarking on an ESG journey starting with defining their current vision and mission and crafting a purpose that in-builds ESG into it.

Stay tuned for the next edition of Culture Insights and reach out to us to discuss how you can future proof your company with our structured programs that can help you meet your ESG goals.

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