Repelling Attacks on Environmental, Social, Governance (ESG) Management
Not surprisingly, a political movement led by a corporate “manager” who made “you get fired” a core tenet of his management practice is attacking contemporary management as it tries to navigate the complex world organizations face in 2023.He went into politics and Donald Trump gave me a vivid example that I could use in my management class to justify my so-called failure masculinity management. While the people he fired on the TV show “The Apprentice” weren’t actual employees, he made firing employees seem like a valuable management tool. Firing employees might make for fun TV, but it’s not good management practice. Effective and competent managers view firings as failures of HR and operations management: either you hire the wrong people, or you mismanage talent so good people stop performing.
ESG management has been exaggerated by ideologues on both the left and the right. As with any management practice, nothing is absolute and ESG principles must be developed to address specific situations. Scoring companies based on ESG practices is somewhat ludicrous, but ignoring or opposing ESG management is even worse. Over the past century, management practice has advanced enormously. Accounting, financial control systems, management information systems, just-in-time inventory control, international business, operations management, team management, and many other innovations enable managers to increase productivity while responding to an increasingly complex business environment. ESG management is just another tool for managers to cope with in a rapidly changing world.
The basics of ESG are simple. The first principle is to focus management’s attention on the organization’s impact on the natural environment. Almost all human activities negatively impact natural ecosystems, so our goal is not to eliminate impacts, but to minimize them. Pollution is a form of waste, and if the principles of total quality management and industrial ecology are applied to production processes, the central goal is to reduce waste to reduce costs. Costs may also include liability for damage to other people’s property where pollution or waste affects the organization’s neighbors. These liability costs can also extend to an organization’s supply chain.
Inattention to an organization’s environmental impact is a sign of poor management. Just as a construction project rife with casualties is indicative of poor operations, any operation that poses an unnecessary risk of pollution is indicative of poor management. Polluting chimneys, under manly management, were a sign of industrial prowess. Under this approach, rushing forward without fear of shock is a sign of strength: “In order to make an omelet, you have to break some eggs.” The concept of “broken” is integrated into the financial control system and is considered a regular practice of the business cost. Under environmentally sustainable management, precision, control and care replace the sloppy habits of the early industrial age. Agricultural giants like Land O’ Lakes use drones, satellite technology, artificial intelligence and robotics to precisely apply water, fertilizer, pesticides and herbicides to plants in fields. This not only reduces costs, but also reduces contamination of nearby groundwater and streams. The E in ESG is about environmental care and concern.
The second ESG principle is that organizations need to be mindful of their impact on local communities. This isn’t a new concept; we saw it when we compared the two banks in the classic Christmas movie, “It’s a Wonderful Life.” The Bailey Brothers building and loans are of and for the community, while Mr. Porter’s bank is just for the money. In New York, deaf Amazon couldn’t locate its second headquarters in Long Island City when community leaders opposed billions in subsidies to one of the world’s richest companies.
The third ESG principle is about diversity in business operations and governance. I wrote this question last March, i observed:
“An organization that prioritizes a race, gender, religion, sexual orientation, or nationality reduces the pool of people it can attract and manage its operations. We are in a brain-based economy. The high value-added part of the economy and the greatest profits reside in organizations or parts of organizations that are creative, analytical and innovative. Software is more profitable than hardware. When products become commodities, they are subject to competitive forces that tend to limit profits. That’s why IBM stopped making personal computers. A diverse board and diverse workforce will provide greater talent and diverse life experiences to address organizational challenges. Organizations with low levels of diversity tend to inspire isolation and groupthink. Being sober and aware of the value of diversity is an indicator of good management. In the global competition for innovation, customers, and profits, a diverse team of the best talent is likely to beat a more homogenous but less talented team. “
The argument against ESG management is that these factors have nothing to do with generating revenue or reducing expenses. They distract the company from increasing its profits, thus breaking the contract between shareholders and management. For some conservative politicians, they are irrelevant ideological principles of the left. I do not deny the ideological element of ESG advocacy. It annoys me, but it’s absolutely true. Of course, conservative ideological opposition to ESG isn’t just annoying. It is destructive. My point is that regardless of politics, ESG management is about effective management in the 21st century.Yingshi Build a brain-based economy of the century on a planet of over 8 billion people. As Paul Simon once wrote, “One man’s ceiling is another man’s floor.” New Yorkers like Paul and I who live in apartments understand crowding. The planet has become crowded. As the impact of errors grows, so does the need for precision and prudence in management. There was a time when you could dump your trash into the ocean because you knew it would decompose and biodegrade. After the invention of durable and long-lasting plastics and chemicals for commercial use, waste no longer degrades in the environment, and its disposal and treatment has become more complex and expensive. We benefit greatly from new chemical technologies, but their use often creates environmental problems that must be addressed. If we are to continue to develop new technologies to drive economic development, we must learn how to manage these technologies before they cause harm to people and the planet.
In many cases, the point of contention seems not to be against ESG management, but rather to use ESG factors to guide investments. I think investors who need ESG management before investing are taking shortcuts that are bound to disappoint them. You can have great management, including consideration of ESG issues, but all the ESG practices in the world won’t save you if you face bad market conditions or launch a bad product line. Investment can never rely on a single indicator, ESG itself is only one of the elements of management. I think it’s necessary, but not enough.this Measurement Organizational utilization of environmental, social impact and corporate governance practices is still in its infancy. We are at roughly the same stage as financial accounting was in the mid-1930s. On the environmental front, we have yet to develop universally accepted indicators of environmental sustainability. The same is true for measures that leverage the principles of corporate governance, diversity and community impact. It doesn’t make sense to assign ESG scores to companies and then use those scores to guide investment decisions.
But delegitimizing ESG factors is at least as bad as misusing and misinterpreting their measurement. We need to better understand these issues and manage organizations in ways that reduce environmental damage, enhance impact in the communities in which they operate, and increase organizational intelligence. Most senior executives with business and legal backgrounds are unaware of these issues.The graduate programs in Sustainability Management (founded 2010) and Environmental Science and Policy (founded 2002) that I directed at Columbia have now produced more than three thousand sustainability professionals who Do Learn about ESG issues. Arizona State University, Yale University, Bard University, The New School, New York University, Harvard University, American University, UC Santa Barbara Bren School of Management, Duke University, LSE and University of Toronto (among others University) programs have provided education to thousands of people. These new sustainability professionals receive the training needed to translate ESG from aspirational goals into organizational action.we are at start Inaugurated a new era of management. But we still have a lot to learn. Progressives put too much faith in our ability to manage sustainability, while conservatives fail to appreciate the importance of these issues to corporate bottom line. It’s sad, perhaps comical, when state legislators who know little about management and little about science try to legislate against what they see as “wake-up” management or “wake-up” investing. But it is also dangerous to overestimate our ability to manage according to the principles of sustainable development. We are learning and we are getting better. But we still have a long way to go, and a little humility is definitely needed. I am optimistic about our progress, but at the same time caution against overconfidence. Attacks on ESG must be repelled, and the best defense is results and improved organizational performance.
