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Keeping you in-the-know on environmental, social and governance developments

[Ed. note: In observance of Veteran’s Day, no blog will be published Friday. We’ll be back at it Monday.]

I blogged earlier this week about the return of garbage economics in ESG/sustainability, primarily in new studies from both companies and academia. Ken Pucker, well-known Professor of Practice at Tufts Fletcher School, former COO of shoe/apparel company Timberland and the keynote at our PracticalESG Conference in September, is expressing similar concerns. In a LinkedIn post, he critiques a new Harvard Business Review article “How Your Company’s Social Purpose Can Also Drive Profit.” Ken says:

“This article reports that companies ‘that successfully achieved the dual goals of purpose and profit did so by adopting what they call an ‘advocacy based business model.’’ Such strategies are underpinned by 4 strategies: (1) Taking a stance; (2) Extrapolation; (3) Strong leaders who accept vulnerability and (4) An enabling culture.

Really? I find this argument astonishingly weak.”

He then explains his reasoning, including:

  • The conclusion is based on the study of only 12 companies. No information is presented on how the companies were selected, what control group was used, how purpose or profit are measured, over what period, and what resulted?
  • These findings come four years after the Business Roundtable announced a shift to stakeholder primacy… According to a review of BRT signatories’ bylaws, guidelines, responses to shareholder proposals and actual practices with respect to compensation, prior to the statement and two years later, Professors Lucian Bebchuk and Roberto Tallarita conclude that the statement was “mostly for show.” They add that “BRT companies joining it did not intend or expect it to bring about any material changes in how they treat stakeholders.”*

Ken also points out a timely development that appears counter to the HBR article’s premise:

“This article also appeared the same week that the new CEO of Unilever backtracked on Paul Polman’s famous focus on sustainability as the driver of purpose. Hein Schumacher noted ‘we will not force-fit purpose across our entire portfolio. For some brands, it simply won’t be relevant, and that’s OK.’”

His points are valid. I expect we’ll see more scrutiny of reports, studies, findings and conclusions about the benefits of ESG. As critiques grow, practitioners will find themselves defending their assumptions and business results to executives, boards and others. Now would be an excellent time to review those, prepare to answer tough questions and make changes to your assumptions, plans, expectations and programs if needed. Some of those changes should include updating processes for vetting information on which you rely. Our checklist “Prioritizing ESG Reading Materials” provides guidance on assessing ESG information sources.

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* I find this particularly interesting as Robert Eccles’ and Tim Youmans’ Statement of Significant Audience and Materiality was changed in 2019 to the Statement of Purpose specifically to align with the BRT. Perhaps now it should revert to its original intent and version. Bebchuk’s and Tallarita’s findings also align with a different but related study that concluded “the creation of a CSO [Chief Sustainability Officer] position may represent more of a symbolic versus substantive governance mechanism,” similarly not intended or expected to bring about any material change.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile