ESG: Environment, Social, Governance. Those three letters have been in high demand for some years now, but how well do you understand their meaning? What is the contribution of governance to the themes of responsibility and what practical tools are there to implement them?
E is for Environment. The concept of environmental responsibility is perhaps easiest to grasp from ESG. Responsibility for one's own carbon footprint, pollution and waste of natural resources are concrete issues and areas for improvement are usually easy to identify.
S is for Social. The social side of ESG is largely about human rights. However, few people are familiar with the substantive side of human rights and how far they extend. Private sector actors have also been lobbying furiously for decades against any human rights responsibilities that would directly oblige the private side. ‘Social' is now often the more comprehensive concept under which human rights are lumped on the business side. Operating under the rubric of 'social', can also work on aspects of social responsibility that go beyond human rights in terms of ethics, as well as on issues that may be more a matter of individual taste than a balancing act between right and wrong.
Perhaps the most complex term of the trio is G for Governance, or corporate governance. Governance refers to managing, leading, anticipating and guiding. If the environment and social factors are the substantive goods in ESG that are sought to be implemented, good governance is the web of influences and their management through which an organization’s will, guidelines and regulations are implemented.
In practice, a Code of Conduct is a set of ethical principles drawn up by the organization itself, which play an important role in guiding governance. A Code of Conduct can be seen as a bridge between objectives and their practical implementation.
There are many titles for the document, but the common names in addition to code of conduct are ethical guidelines or ethical principles. The unifying factor is the purpose of the code. The intention of the document is to set out the key policies and objectives of the organization, to guide and direct towards desirable behavior and practices within the organization.
A carefully crafted and implemented code of ethics is a powerful device as a tool for governance. A well developed and embedded code eases management and choice making in the workplace. Ambiguity in situations involving ethical issues create uncertainty, risk and strain in organizations. When a common set of principles has been negotiated, written down and established in the workplace, less time and energy get wasted on deliberation. A good set of guidelines makes work more efficient by acting as a mental compass in situations of choice.
An effective code of conduct is the result of a participatory process involving the whole organization. It can contribute to the implementation of the organization's values, strategy, vision and ESG objectives. The key to achieving all these objectives is that the code’s content has been developed internally, in a pragmatic way and by listening to all levels and parts of the organization. There needs to be a balance between ambition and realism.
It is easy to make declaratory CSR/sustainability/ESG pledges, but how do you go about putting declarations into practice? Publicly committing a company to international agreements, pledges, and programs is a great step, but if the content of your own guidelines consists only of a list of these instruments, it may be unreasonable to assume that staff and other stakeholder groups really know what they contain or how they should be implemented in your organization. Code of conduct is one of the tools that can be used to embed responsibility themes in practice, and the drafting process itself is one of the most essential steps to ensure the effectiveness of the final code.
Would you like to discuss further? I am happy to help with any CSR, ESG or Code of Conduct matter.
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- Jenna Nordman