Critics who say companies should only consider the bottom line are missing the point
ESG, and by extension DEI, is under attack. Critics say that having “environmental, social, and governance” goals – with diversity, equity, and inclusion often lumped into the “social” bucket – distracts from what private organizations should focus on. They should be worried about the bottom line and nothing more, the argument goes.
While this position has the benefit of simplicity, it ignores the nuances of ESG. It is not about whether companies should worry about the environment or social issues but how these things interact with their profitability.
There is no doubt that a company’s operating environment and the diversity of its workforce will affect its profits. Yet many companies treat ESG as a “check-the-box” exercise, simply stating they are doing something with no substance to their claims. This is where attacks on ESG should be directed.
As Conor Chell at KPMG outlines, regulators are catching up to this superficial approach to ESG compliance. “Greenwashing,” where environmental claims don’t match the reality, is on the radar of the Competition Bureau. Companies that make exaggerated or false claims about their environmental bona fides are being notified that they may be fined.
While there may not be an equivalent regulatory crackdown on false claims about social initiatives, businesses that claimed they were committed to improving their diversity during the Black Lives Matter protests in 2020 are also being pushed to prove their ongoing commitment. Companies that said they were committed to engaging with underrepresented communities but did nothing will see the effects on their brand in the court of public opinion.
Increased scrutiny should be a welcome development for companies genuinely committed to change. Understanding how environmental changes and the makeup of their workforce affect their businesses will help them operate more profitably.
As Chell notes, “It is no longer optional for companies to not take accountability for or provide further transparency into their public ESG commitments. Companies that fail to adapt will risk legal repercussions and lose the trust of the public and the investment community.”
Conor Chell will be the keynote speaker at the ESG Summit in Toronto on October 30. Visit ESG-summit.ca to register.
