Why steward leadership is important as businesses take on the ESG challenge
Stewardship Asia Centre
In the past decade, the ESG framework has become an important and popular driver of positive change towards more responsible handling of Environmental, Social and Governance issues. The Covid-19 pandemic reminded everyone how connected and interdependent the world is, adding further momentum to this ongoing shift from shareholder to stakeholder capitalism.
While the spotlight on ESG has helped several organisations develop and report their sincere efforts to address today’s existential challenges, it has also been misused by many. Thanks to increased transparency, due largely to online campaigns and the broad social media footprint, companies that are dishonest about their ESG claims have come under scrutiny.
Regulators across Europe and the US are tightening requirements and cracking down on overhyped claims, including the metrics underpinning ESG ratings. The U.S. Securities and Exchange Commission (SEC) announced its first case against an investment firm over alleged ESG misstatements in May, with BNY Mellon’s investment arm agreeing to pay $1.5 million to settle charges from the regulator. DWS, majority-owned by Deutsche Bank, was also alleged to have over-reported the value of ESG assets in its annual report, according to whistleblower and former employee Desiree Fixler. Unfortunately, these are not isolated examples. Amid the intense pressure in today’s global capital markets to "do well" commercially while maintaining a “do good” reputation with the public, companies appear to be misusing the well-intended ESG framework. As such, reports of such “greenwashing” are appearing in the media with greater frequency of late.
At Stewardship Asia Centre (SAC), we stress that Steward Leadership is vital to ensure the integrity of ESG actions. We define steward leadership as the genuine desire and persistence to create a collective better future. Our research shows that the most powerful examples of meaningfully addressing challenges like climate change and income inequality stem more from authentic steward leadership rather than regulatory or market pressure. While initiatives such as green finance, regulation and reporting, and incentives are critical, unwavering steward leadership intent is the underlying force required in the implementation of ESG measures to save Planet Earth and humanity.
Steward leadership at the workplace
The purpose of steward leadership is to create a collective better future for multiple stakeholders, not just shareholders. It is anchored in four values: Interdependence, Long-term View, Ownership Mentality and Creative Resilience. While most organisations articulate a stewardship purpose and values these days, few convert articulations into meaningful action. Those that succeed in doing so have deeply embedded these values into their workplace culture. In such cultures, these values guide every action of employees and management. To establish such a culture, both Management and Board must work closely together with clear intentionality.
“The push for Steward Leadership today is coming from the voices that companies cannot ignore, including their customers, their investors and their employees. Evidence is building that customers will not buy from you, investors will not invest in you, and talent will not work with you, if you don’t share their sense of purpose. The core values that you stand for must be embedded into your culture and every aspect of your value chain. The organisational mantra has to change from increasing the ‘value’ for shareholders to emphasising the ‘values’ for which the company stands,” said Dr Vinika D. Rao, Executive Director, INSEAD Emerging Markets Institute, Gender Initiative & Africa Initiative, and Asia Director, Hoffmann Global Institute for Business & Society.
“Boards must set the tone at the top and are increasingly assuming accountability for corporate culture. This involves encouraging the right behaviour and minimising the risks of undesirable conduct, for example, ethical matters, health and safety factors, fostering a culture of respect at work, and protecting whistleblowers. Steward leaders employ a culture of workplace dignity that drives physical and psychological safety at work and from home. That inspires people to bring their true selves to work and give it the best,” said Shai Ganu, Managing Director, Global Practice Leader, Executive Compensation and Board Advisory, WTW.
As capitalism resets to integrate the needs of the stakeholders and the environment, companies and investors must acknowledge the need to create a culture of genuine steward leadership. To this end, SAC, INSEAD Hoffmann Global Institute for Business and Society, WTW and The Straits Times have come together to launch Steward Leadership 25 (SL25). SL25 is an annual listing of companies that have shown excellence in steward leadership by creating mutual prosperity for employees, shareholders and society at large. The inaugural list will be announced in November.
For more information on SL25, click here.