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Brain circuits

Have you fallen into one of these ESG risk traps?

Published 28 October 2021 in Brain circuits • 3 min read

Sometimes, even when you believe you have committed yourself to doing better, your actions don’t meet your intentions. So, even if your company has what appears to be a strong and effective statement on the environment, sustainability and governance, it’s worth periodically reviewing whether you are actually living your stated values.

Have you become seduced by value extraction?

Creating societal value can be a struggle when you feel pressure from the bottom line, or shareholders are demanding more payouts.

It is important to remember that short-term gains like these often have longer-term effects, including a corrosive effect on company culture. Such shallow thinking can stifle the innovation needed to create real value.

Are you deceiving yourself?

You may be accidentally greenwashing. It’s great to look at sustainability and write a report on it, but is that all you are doing? A stated commitment to sustainability and a discussion within your company is great, but if you aren’t backing it up with real action, you may be deceiving yourself.

Are you avoiding the evidence?

This is similar to deceiving yourself. Sometimes when executives are presented with evidence that they are not acting in a socially responsible or sustainable way, they spend more energy showing how the claims are wrong instead of processing the evidence and deciding what to do about it. How might you consider what you could do to change their minds?

Are you underestimating stakeholder pressure?

If you aren’t taking ESG initiatives seriously, it may surprise you to learn that investors are. Several companies have had to change course abruptly after investors put pressure on them – even if you haven’t adopted a long-term view, the investment community is moving that direction.

Are you overestimating your ability to shape the agenda?

Sometimes large companies think they wield more power than they do. The tech sector is a good example of this – while tech companies have both capital and influence, they overestimate their ability to shape the environment. Regulators may act if you don’t.

Further reading: 

Escape ESG Risk Traps: How to Reinvent Your Company’s Role in Society by Knut Haanaes and Paul Strebel

Authors

Knut Hanaaes - IMD Professor

Knut Haanaes

Lundin Chair Professor of Sustainability at IMD

He was until recently the Dean of the Global Leadership Institute at the World Economic Forum. At IMD he teaches in many of the key programs, including the MBA, EMBA and other executive programs. He is Program Co-Director of the Leading Sustainable Business Transformation program. His research interests are related to strategy, digital transformation and sustainability.

Photo of Paul Strebel

Paul Strebel

Emeritus Professor

Paul Strebel works with boards of directors and top management teams at IMD as an educator and advisor on strategic vision and the resolution of boardroom conflicts. He has twice received the Award for Research on Leadership from the Association of Executive Search Consultants and has won several case study awards from the European Foundation for Management Development. books include Breakpoints: How Managers Exploit Radical Business Change and Smart Big Moves: The Story Behind Strategic Breakthroughs. 

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