This article first appeared in Forum, The Edge Malaysia Weekly on January 23, 2023 - January 29, 2023

Organisations large and small are hopping onto the “sustainability bandwagon”, but do we truly know ourselves in the haste to combat climate change? Are we conscious enough to accept the inadequacy of current behaviours, yet driven enough to confront this? As much as we are compelled to join the race to net zero, operating on the current trajectory may not necessarily bring us to our goals.

To truly succeed in pursuing sustainability, we need to consider how society, including vulnerable communities, is affected by our actions beyond just improving business practices. This requires a paradigm shift in the way positive behaviours and norms are cultivated and reinforced to accelerate the journey to net zero. Investing in robust social (“S”) and governance (“G”) practices are part and parcel of this transformation exercise. Only with a solid growth trajectory enabled by authentic ESG adoption can we then win this “race”.

Philosophy has always been intriguing. The ancient Greeks lived by two maxims — the Delphic maxims — that are still true today: first, know thyself and second, nothing in excess. The ancient Greeks left nothing to chance — to know thyself is the first maxim, marking its importance. Prominently inscribed on the pediment of the Temple of Apollo during ancient times, it would have been hard to miss.

How is this relevant to organisations today? As a start, before your organisation crafts its ESG blueprint, have you performed a clear current state assessment? This process will provide the necessary runway to launch changes required as you move towards your goals.

Bringing in two more concepts — “the law of correspondence” and “the law of cause and effect” (from the Hermetic philosophy) — may help illustrate the process of transformation. The law of correspondence is articulated in more layman terms as “you reap what you sow”. The law of cause and effect makes a distinction between the root cause of a phenomenon versus the effect — the mere reflection of the cause. Indeed, it is important to address the actual issue or problem instead of the mere reflection. It is, after all, futile to change one’s reflection in the mirror without changing yourself.

Numerous studies have explored how different the world looked centuries ago. Have you wondered how failure to address ESG elements may have been at the core of the fall of ancient civilisations?

Fulfilling all elements of environmental, social and governance is understandably tricky as more weightage is typically given to environmental issues, often resulting in trade-offs in terms of attention given to social and governance issues. Let’s consider how ESG was practised in the once-glorious Roman Empire.

The Roman Empire could have perhaps benefited from a strong ESG framework. Environmental issues like climate extremes were not adequately addressed, causing a negative impact on agricultural activities even during that time.

The result was a domino effect across its socio-economic landscape. Imagine droughts, earthquakes and floods that could have been better managed or mitigated with better “E” (environmental) management. This impacted the working classes more adversely due to their undesirable living conditions that had greater exposure to environmental elements. In terms of “S”, income inequality and social inequity were rife. The working class was routinely oppressed by the ruling class. “G” issues were also observed in the opaque decision-making processes that were plagued with inefficiencies. This illustration highlights the importance of managing ESG risks before it’s too late.

How do we create long-term value from transformation? From a strategy perspective, changes in business activities can be categorised as structural, operational and discretionary. What we are calling for is structural change; arguably the most difficult that also moves the needle, setting the base for other changes to gain momentum. If you were to visualise a pyramid, structural changes will form the base, operational changes the middle layer while discretionary changes are at the tip.

To perform structural change; we believe there are two key drivers. First, having an authentic, clear and purposeful mission with a concrete timeline; and second, pursuing proper investment sizing. Only then will you be able to set yourself apart from conventional ESG practices that may appear bold, but may also unfortunately be categorised as greenwashing. In other words, embracing ESG at a core level is not a case of simply taking action and hoping for the best.

There is beauty in simplicity. This extends to an organisation’s mission statement. A simple mission that authentically reflects the value your organisation brings to society is key. Oftentimes, successful organisations have a clear and simple mission. Building market leaders start by following this, where employees are crystal clear about their roles in the organisation, have measurable key performance indicators (KPIs) and are correspondingly able to deliver as they are expected.

In summary, embracing ESG at a core level goes beyond aspirational targets and commitments. The journey needs to be supported by enablers as part of your core corporate functions. This includes alignment of diversity initiatives and executive compensation to ESG KPIs, formalising ESG targets as policies, as well as upskilling and pursuing cultural change across the organisation.

In the face of rising interest rates fuelling recessionary fears; organisations need to practise ESG adoption that adds value to day-to-day operations and the overall society. Relying on narratives alone does not wow the markets anymore; internalising ESG practices with real change to the norm is crucial. It is also important to refrain from playing a game of one-upmanship. This is often motivated by peer pressure and a desire to replicate what others are doing simply to check the boxes, often without originality and authenticity.

To achieve something you have never attained, you need to be prepared to do something you have never done — embodying authenticity in your mission. Authenticity means your mission must be original and cannot be easily replicated while being able to make financial and ESG sense. The first step comes from knowing thyself, one’s competitive edge and weaknesses, what needs to be refined and what could potentially be forgone. The second step is to rigorously sharpen your competitive edge, aspiring to be best in class while possibly developing enhanced products or services that are better, cheaper and more accessible to consumers. The idea is to use your strengths in the market, to introduce new products or services aligned to your mission, to reshape the norm and enhance the welfare of all stakeholders involved.

The new mission will serve as your organisation’s first decree by which employees live and breathe. Often, authenticity may involve a departure from the existing business model, as your organisation will need to consider more stakeholders than ever. For example, discontinuing a product line that is deemed highly polluting may be good for “E”, but in the immediate term, it negatively impacts “S” as the workers involved may need to be terminated if reassignment is not possible. These workers’ livelihoods and dependants will be negatively affected. Hard decisions and trade-offs will need to follow, but having the original mission to guide and steady one’s hand will help. For this journey to be authentic may be daunting but, as illustrated by the concept of “you reap what you sow”, the fruit of your labour could be immense and multigenerational.

The second or rather concurrent driver is more quantitative; an investment sizing that enables the changes. Referring to the law of correspondence above — your decision needs to consider the delicate balance of risk versus reward.

Investors are increasingly discerning, seeking out multiple sources of information to ensure that companies are walking the ESG talk. Evidently, companies need to be careful about replicating content from other companies when crafting their sustainability statements to provide a reliable and accurate picture of their ESG profile. Focusing on how they can solve problems, by being transparent about the good and not-so-good practices, is key to creating accountability. Acknowledging that the current trajectory they are on is insufficient but that growth is still possible will pave the way for structural changes to take place.

The “correct” level of investment must not only be significant enough to produce the desired change, but must also be financially consequential. As highlighted earlier, stakeholders are increasingly conscious of and focused on the real value that ESG-led organisations bring to the table. These benefits need to be significant enough to bring overall positive value to business and society, which takes considerable time, effort and investment.

Humans are creatures of habit. In order to change, it is necessary to ensure the benefits of change outweigh the costs of change and are clearly communicated and understood. However, one should depart from conventional methodology in business which usually calls for a risk-adjusted course of action. One should instead be prepared to undertake additional signifi-

cant risk that may not be immediately palatable but may produce exponentially higher rewards if executed correctly.

In addition, creating long-term sustainable ESG value is to be original in your strategy, adopting calculated risk-taking behaviour in your investments, and being adroit in your timeline and reporting. Short-term, low-hanging fruit is best capitalised on quickly; for instance, having healthy board diversity and carbon footprint standardisation across all employees. When paired with a robust medium-term plan that cannot be replicated by others and is significant enough for society to care, the chances for success are maximised. Finally, long-term value creation comes naturally through many successful short- and medium-term executions over an extended time horizon.

To sum up, as the famous inventor Nikola Tesla said, “Be alone, that is the secret of invention; be alone, that is when ideas are born.” Indeed, stories of what others have done well in ESG may be interesting but what works for others may not work for you. It is time to truly know yourself (or your organisation), push the originality and innovation levers, and be bold enough to make decisions that will create significant impact to put you on the trajectory for long-term success. Coupled with an honest and careful current state assessment and clear mission, you will then be able to bring your mental vision to the physical plane to reap what you desire. This will benefit your organisation and the public across generations.

Jasmine Voo is sustainability director, value creation, and Wong Zhen Kit is sustainability manager, value creation at PwC Malaysia

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.