• ESG

    ESG and Corporate Sustainability: Marathon or Sprint?

    This article, written by Agostina Coniglio and Constanza Connolly, partners in Argentina at Keidos, explores the gap between companies’ ESG and sustainability commitments and their real implementation. It highlights the importance of strong governance and warns about the dangers of greenwashing, which can affect the credibility and long-term value of organizations.

    ESG and Corporate Sustainability: Marathon or Sprint?

    “If you don’t know where you’re going, any road will take you there.” The lack of management of ESG and sustainability issues in organizations could embody this very phrase.

    In recent times, particularly the last decade, these issues have become a central part of the business agenda, reflected in the exponential increase in the number of commitments adopted by companies. However, the fulfillment of many of the goals behind these commitments remains an unresolved issue for many organizations.

    The reality is that there is currently a huge gap between the ESG and sustainability commitments adopted and the actual implementation of actions that lead to their fulfillment. That is, from the adoption of practices along with a set of quantitative or qualitative indicators that allow evaluating and measuring the effectiveness of their results to understand the value created or preserved for stakeholders through impacts and risks, strengthening future decision-making under a continuous improvement approach.

    Three data points will help illustrate a bit more the disconnect between aspiration and action:

    1. In 2022, less than 16% of Latin American CEOs surveyed in an IBM report indicated they were implementing their sustainability strategy in their organization.
    • A recent study by Page Executive indicates that in large organizations, 69% of boards have developed a sustainability strategy, although only 23% of companies have established clear performance indicators to implement their sustainability policies.

    It is also true that we cannot and should not generalize. But what we seek here is to contextualize how to favor the systematic and strategic adoption of these practices to make them successful and thus achieve the desired impact.

    The environment that surrounds companies today regarding advances in ESG and sustainability is erratic, influenced by a variety of visions and pressures. From investors more aware of the emergence of new risks that require the development of greater resilience, regulators advocating for greater transparency, to consumers, customers, and communities more empowered to demand accountability that lives up to the commitments made. At the same time, the network of sustainability standards, initiatives, and frameworks, especially those of disclosure and reporting of information, sharpens its requirements. We wouldn’t do justice by saying that the bar of expectations for organizations in these issues today is high, extremely high.

    This complex horizon is further strained by the heterogeneous set of interests that companies must weigh when making decisions. All of this has led to the practices that organizations adopt being closer to “seeming” than “being” sustainable and resilient.

    We can list some of these “practices”: greenwashing, used to appear more sustainable than they truly are; greenhushing, informing as little as possible, strictly adhering to information requirements, which in many cases prevents full and accurate access to data; or companies expecting to meet their commitments and adopting them without the means to do so, also known as greenwishing, and even other similar styles where the set goals are easily or quickly achievable.

    The flip side of these practices could be likened to a boomerang, as we have witnessed how they can negatively affect the value and profitability of companies when not properly managed. Among them, we can mention Volkswagen’s “diesel gate,” the greenwashing scandal of Deutsche Bank where the integration of ESG into its investments was exaggerated, and even the historic Dutch court ruling against Shell, ordering it to drastically reduce emissions by the end of the decade to meet the reduction target the company itself had set.

    Furthermore, various studies and analyses indicate the relationship between ESG or sustainability controversies and the long-term loss of value of a company, with those organizations having a poor management history more likely to be affected.

    These events ultimately distance organizations from the real spirit behind corporate sustainability and simultaneously sow skepticism about a correlation that was established long ago and even recently confirmed. As noted by the NYU Stern Center for Sustainable Business and Rockefeller Asset Management report, which examined various studies on this connection, concluded that ESG and sustainability practices generate long-term greater profitability, greater resilience, especially in social or economic crises, and foster better risk management along with greater innovation.

    BSR, in its most recent report, highlights that “(…) Achieving sustainability goals entails a much greater transformation that sometimes involves questioning the current business model and working systematically to address what and how we produce and consume.” Undoubtedly, this is a much deeper discussion that exceeds this article, but one thing is clear: Transition means changes, and with them often come risks, but also opportunities.

    So, should we be or seem? How is change achieved? Simple. A balance between the desirable and the feasible. Combining aspiration with action, what is said with what is actually done.

    Without direction, there is no destination or arrival. Embarking on this transition implies order and conduct. That is, proactively managing change and being prepared for it. Without confusing this premise with a lack of ambition, we again emphasize the importance of contextualizing to understand what needs should be addressed—in line with capabilities—to help companies overcome this challenge and thus break the status quo.

    This is where organizational governance takes center stage. We often mention that ESG and sustainability practices begin and end with the “G” because—regardless of the type of organization—governance has the enormous influence of promoting changes based on more informed decision-making processes that integrate all stakeholders. It also has the capacity to create action frameworks to facilitate the systematic management of decisions, promoting a holistic view that distances organizations from working in silos or atomized and allows for the monitoring and evaluation of their real effectiveness in creating—and preserving—long-term value.

    The “G” also represents being guardians of the most important assets such as trust and culture. Ultimately, governance has the capacity to achieve the change in business behavior. This influence—especially in adopting decisions that integrate the visions of all stakeholders—has been seen in the modernization of its concept in the face of the emergence of Stakeholder Governance, Transformational Governance, and Integrated Governance or Sustainability Governance.

    The recognition of the importance of leadership in achieving real and concrete business behavior changes is evident. In the path of transformation, there are and will be difficulties that we do not ignore but understand that we must prepare to overcome them. After all, a transition is more of a marathon than a sprint. Shall we begin?


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