Purpose and ESG standards

BSI's Head of Sector (Environment, Social and Governance) David Fatscher sees the fallout from the Covid-19 pandemic as an opportunity to fundamentally review the relationship between business and society.

“Even when the pandemic is over, the climate emergency and growing social inequality will still be with us. It could be argued that by magnifying the effects of interrupted business operations, COVID-19 has simply foreshadowed the many stress scenarios that need to be anticipated,” said David.

“Given the size of the challenges facing us, I think we are all looking for some fundamental reforms. Now is not the time for window dressing. We’ve experienced a collective system shock, now we need system change.”

This mood is increasingly prompting companies to ask the question – why do we exist? What is our purpose?

“Some organizations are looking beyond the pure balance sheet definition of ‘success’ and recognizing that they are part of the wider social tapestry, so their purpose should extend beyond profitability and delivering value for shareholders,” said David. “Of course, this is not a purely altruistic impulse as the thinking is that greater profitability comes as a result of a greater commitment to purpose; by behaving in a demonstrably purposeful way, the profits will follow.”

When it comes to defining a purpose and ‘building back better’ David asks the pertinent question, “Who decides what ‘better’ is? “At BSI, our view is that purpose is a driver of more sustainable growth, built upon a foundation of respect and ethical business practice, all behaviours that we would group under the term ESG.

ESG, which stands for Environment, Social and Governance, is an acronym coined by financial investors looking for measurable indicators of business performance beyond simple profitability. “ESG measures recognize that there needs to be greater transparency in terms of company behaviours, and how these impact on operations.”

Such fund managers want to be sure they’re not investing in businesses that act in a way that might be termed unethical. “Increasingly, there is recognition that a company that is unprofitable at the moment but has strong ESG indicators is a more investible prospect. Being able to demonstrate a greater commitment to resilience means that the ability to absorb future shocks is already hard-wired into organizational DNA” said David.

By acknowledging the impact of climate change and resource depletion, and how that will impact on current supply chain models, companies with strong ESG credentials have begun to outperform those with a less agile business culture.

Another sound business reason for embracing ESG values is changing demographics. By 2029, Generation Z and Millennials will make up 79% of the workforce, compared to 52% now. Research shows that, for those groups, ESG values are a significant driver in determining their choice of employer.

“An organization able to demonstrate good performance and ongoing progress against ESG measures will find it easier to recruit and retain the best talent, which will ultimately make it more resilient and successful in the long term,” said David.

As well as being in positions of power and influence within organizations, Gen Z and Millennials will make up the majority of consumers as the century progresses. “If you don’t want to alienate future customers, you had better be embracing ESG values now,” observed David.

Standards are a compass for your ESG journey

BSI’s contribution to the debate on ‘Purpose’ comes in the form of a PAS standard which is expected to publish in 2021.

The PAS is being sponsored and shaped by a number of organizations keen to share their own knowledge on how businesses can take a transformative step forwards to demonstrating a real public interest commitment.

“In the PAS we’ll be answering the fundamental questions such as ‘what defines purpose, how can it be embedded into an organization’s governance and decision-making processes, how can it be monitored and, as importantly, how can progress be communicated to stakeholders?” said David.

The PAS is the latest from BSI in a number of standards that are more principles-based. “The BSI brand is especially strong with regard to standards that can measure the performance of a product being manufactured or a service being delivered, and the processes that support product manufacture and service delivery,” said David.

"While such standards remain the bedrock of our catalogue, we’re also seeing an increasing demand for good practice that goes beyond product and process and addresses the values of the organization making the product or delivering the service.

“In such cases, as with the PAS on Purpose, we are not developing a pass/fail test method as we might do with a product performance standard. We’re saying it’s more of a journey, and different companies will be at different stages of that journey, moving at different speeds, looking to take different routes forward. So, we are looking to define that end destination, whichever path that organizations may choose. In that sense, we are providing a knowledge compass.”

Once an organization has established its purpose, there is a plethora of standards they can apply to fully realize it, help strengthen their ESG credentials and become more resilient to future system shocks. A selection of those standards is listed below. They are all written for organizations of any size and in any sector.

There is, says David, very sound reasoning behind embracing ESG because of how it enhances an organization’s ability to weather operational turbulence and anticipate the impact of future storms.

“All organizations need to be aware that climate change and resource depletion will mean seismic disruption to established models of operation. The global pandemic has shown us that a return to ‘business as usual’ is neither likely nor even desirable. Companies must understand the forces that are going to shape the next 10 years and recognize both the risks and the opportunities. This requires having a strong purpose-led culture underpinned by consensus-based standards of good practice.”