CPO Crunch: Let’s get rational about ESG

When it comes to ESG, there have been growing murmurs of discontent recently as political figures – predominantly in the US – attempt to push back on its growing influence.

The arguments, which I won’t explore in detail here, are focused around whether markets are being manipulated and whether investors and corporations are being forced down a particular route unwillingly due to the reach of increasing regulation. The arguments are fierce, with threats of litigation being thrown around already.

As business leaders, CPOs will find these developments unsettling. To drive change in ESG demands long-term, strategic plans between buyers and suppliers; plans that require significant capital expenditure and, in many cases, deep inter-company collaboration.

I remember speaking to the CPO of one consumer goods company about the carbon intensity of glass manufacturing and how difficult it will be to shift the needle on the manufacturing process to meet future sustainability goals. To do so requires significant trust and innovation to drive the technology forward – something that can only be maintained with a stable and supportive political and investor environment. And that environment is destabilising almost by the day.

Boardroom discussion will be increasingly conflicted as a result – the desire and duty to do what feels right might still be in play; but investor, regulatory and political trends can be deal breakers. Today’s climate promises to be a defining moment, as business leaders navigate this increasingly complex landscape.

Enter Alex Edmans, professor of finance at London Business School and one of the speakers who will join Procurement Leaders member CPOs for our Ovation retreat in the Netherlands this week. Alex has developed the concept of “rational sustainability” as a replacement for ESG, something he told me last week is crucial if we are to maintain progress towards net-zero goals.

“ESG is under attack from all sides,” he writes in a February paper. “True believers wish to keep practising ESG but call it something different; opportunists recognise that an ESG label no longer helps launch funds or attract customers; opponents seek to ban ESG outright.”

The article goes on to propose the alternative of rational sustainability. “Sustainability refers to the goal – the creation of long-term value rather than the ticking of ESG boxes – which is of interest to all job titles and political leanings. Rational refers to the approach: it recognises diminishing returns and trade-offs; it is based on evidence and analysis; and guards against irrational sustainability bubbles. Rational sustainability is not a rebranding or a name change, but a fundamental shift in the practice of ESG to the informed creation of long-term value.”

Following Edmans’ speech at Ovation, the community will explore in depth how they are driving impact in sustainability. I expect it to be not only rational, but inspirational too.

Sydney Opera House will be the compelling backdrop in late July as our Pacific membership comes together for the Australia Forum. With an agenda focused on enhanced value creation and delivery, speakers organisations including McCain Foods, Thai Union and Ramsay Health will explore future-fit operating models and the quest for enhanced productivity.

Drop me a line if you are reading this and would value attending the Forum.

To receive weekly insights from the Procurement Leaders community, sign up to the CPO Crunch newsletter using the link at the top of this page.