Navio Kwok is the vice-president of research and marketing and Anuradha Chawla is a partner at Kilberry Leadership Advisors, a firm of management psychologists based in Toronto and New York that specializes in executive assessments and C-level leadership advisory.
Public expectations today demand organizations serve a social purpose beyond delivering financial performance. So, what’s the outlook when companies publicly commit to being champions of ESG? At the moment, discouraging.
A recent analysis revealed that, although signing onto the U.N. Principles for Responsible Investment attracts more capital, signatories have not improved the ESG ratings or financial returns of their ESG investments. This is not an isolated revelation – study after study confirms this gloomy forecast.
Real ESG progress requires active involvement and support from decision-makers at all levels, from boards of directors who set the goals to middle managers who create the products and services.
Yet there are leaders stagnating this progress – known as closet dissenters – who present themselves as advocating for ESG in public, while passively opposing or merely idling on ESG initiatives in private.
Many leaders simply do not believe in the value of ESG. For instance, separate surveys of company directors by PricewaterhouseCoopers found that 56 per cent of respondents thought boards are spending too much time on sustainability, and only 38 per cent thought ESG issues have a financial impact on a company.
But with mounting pressures on companies to focus on ESG, such as regulatory mandates, closet dissenters act in fear of retribution and appease these external forces by suppressing their underlying attitudes.
A study of Swiss energy investors illustrates the power of these latest thoughts. The researchers found that investment managers’ implicit, underlying attitudes toward clean energy more strongly predicted their actual investments in solar energy than their explicit, self-reported attitudes.
Against the backdrop of recent heightened regulatory scrutiny of ESG services at organizations including Goldman Sachs, BNY Mellon, and Deutsche Bank, decision-makers must spot closest dissenters to pre-empt their undermining, inaction or derailment of ESG initiatives.
The following are three behavioural clues using research on greenwashing and symbolic corporate social responsibility (CSR) as a springboard. At their core, both involve a disconnect between an entity’s public image around environmental or social virtues, and their actual contributions to those areas.
1. Focused on the impression
Closet dissenters begin the ESG conversation from the perspective of reputational risks and rewards and how best to position the company’s ESG performance to the market. This emphasis on impression management is a hallmark of symbolic CSR, in which an organization’s CSR efforts focus on the reputational benefits rather than genuinely helping the social cause.
Within the organization, closet dissenters will ask questions such as, “How do we want to present ourselves?” or “How do we spin this message?” Outside the organization, these individuals emphasize their involvement with environmental or social advocacy groups to benefit by their associations. It’s unsurprising that a recent global survey of executives by The Harris Poll for Google Cloud found that 29 per cent of respondents believed their company “treats sustainability like a PR stunt.”
2. Fit solutions to problems
Under the guise of problem-solving, closet dissenters seemingly support ESG by recommending “management fads.” While popular, they fail to deliver on their promises because such fads are overly prescriptive and claim universal relevance.
For example, a recent study found that among S&P 1500 firms led by a female CEO, the senior-most female executive team members are paid 16 per cent less than they would have had they worked at a firm led by a male CEO. Thus, organizations can appear to support gender parity with greater female representation at the top, while not actually doing the hard work to genuinely support female leaders.
Gender diversity and representation are paramount. But implementing a solution without fully understanding the underlying problem will come across as a fad, will not drive substantive change and can even create more problems.
3. All style no substance
Closet dissenters speak about ESG with language that passes the sniff test, such as making trivial claims about being green or using technical jargon. While such buzzwords appear legitimate at first glance, when probed more deeply, it becomes clear they are all form and no function.
Consider the following example that global investment firm Acadian Asset Management shared with Bloomberg Businessweek, where Albert Chao, president and CEO of chemical and plastic manufacturing company Westlake Chemical, was asked to explain his firm’s decarbonization strategy: “This issue is very important for the company, its employees, and the whole world. We want to do our part as much as we can. … And I know to get to zero net emissions, that’s a tall order. And a lot of work is being done on that. But I think with still a lot of progress to come out, and we are very conscious of it.”
To safeguard against such greenwashing, Acadian uses artificial intelligence-based tools to comb through transcripts of executives speaking at shareholder meetings and earnings calls and identify instances where executives respond to ESG questions with cursory language such as vagueness. In the case of Mr. Chao, Acadian’s algorithm flagged it as a nonanswer. The firm then uses these insights to enhance risk-adjusted returns.
The bottom line
It is critical to spot closet dissenters among all decision-makers, but it is especially important at senior levels of the organization. Failing to address these obstructions at the top can lead to a culture of closet dissenters that permeates throughout the company, ultimately impeding real ESG progress.
This column is part of Globe Careers’ Leadership Lab series, where executives and experts share their views and advice about the world of work. Find all Leadership Lab stories at tgam.ca/leadershiplab and guidelines for how to contribute to the column here.
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