What is ESG Leadership?
Strong leadership has always been a defining characteristic of any successful business, but what defines strong leadership is shifting. With the increasing urgency for climate action, businesses are under pressure to take the lead. This requires leaders who are capable of driving sustainable change.
Significantly, in a 2023 Teads study, 75 per cent of Australians would like to see more companies adopt a proactive stance on sustainability. Many reports also show that ‘green’ jobs are on the rise.
Businesses across all sectors are grappling with the need to meet stringent emissions targets, not only to operate ethically and comply with regulations but also to align with the growing expectations of consumers and stakeholders.
ESG leadership is a crucial component in this shift, playing a vital role in steering organisations toward long-term ecological responsibility and economic success. But what is ESG leadership, exactly? And, most importantly, how can it be implemented across all industries?
In this article, we’ll define ESG leadership and discuss its importance, core principles and practical applications. We will also outline how aspiring leaders can cultivate these essential skills.
What is ESG?
ESG refers to Environmental, Social and Governance - a framework that helps stakeholders and investors to evaluate a company’s impact on society and the environment.
While ESG overlaps with sustainability, they are not the same thing. ESG refers to specific criteria that help stakeholders make informed decisions about the organisation’s environmental, social and governance impact.
Sustainability, in a business setting, is an umbrella term that refers to the organisation’s relationship to the environment. It encompasses how the organisation operates to protect the planet and promote social good.
What is ESG leadership?
ESG leadership refers to leading an organisation towards environmental, social, and governance goals that align with the company’s values, vision and strategy.
Unlike traditional leadership models that may prioritise short-term gains or profitability with little regard for external consequences, ESG leadership emphasises a balance between economic success, environmental stewardship and social responsibility. It’s about ensuring both long-term viability and a positive impact on the community within which the business operates and, ultimately, the planet.
The practical applications of ESG leadership can vary based on industry type and specific business structures. They may include:
- introducing or improving emissions metrics
- allocating dedicated sustainability resources
- creating a sustainability culture and empowering employees’ green behaviours
- championing small but impactful practices such as workplace recycling and the elimination of single-use plastic
What is the importance of ESG leadership?
ESG practices are no longer just a ‘nice to have’ in long-term organisational strategy - they’re a must. This means that having ESG leaders who are equipped to lead in this space is pivotal.
So why are ESG business practices so important? There are several key factors driving this.
Businesses impacted by climate change
Organisations of all sectors and sizes are facing the immediate impact of climate change.
Industries like agriculture, energy, tourism and e-commerce are particularly vulnerable and at risk. Extreme weather events such as droughts, bushfires, storms and floods have an impact on crops, global supply chains, seasonal travel and more.
Consumers increasingly value sustainable companies and products
If consumers vote with their wallets, the polls are weighing in ESG leadership’s favour. In Australia alone, sustainability has become a ‘key purchase criterion’, with 38 per cent of consumers actively factoring it into their purchasing decisions.
Globally, a study conducted by PWC found consumers are willing to pay 9.7 per cent more for sustainable products, even amidst rising cost of living and inflationary pressures.
Research by the Harvard Business Review concluded that ‘truly sustainable brands’ will succeed in meeting increasing consumer demand.
Top tier talent increasingly values sustainable companies, too
Consumers aren’t the only ones factoring sustainability into their decisions. ESG leadership can not only improve a brand externally but also attract – and retain – strong talent internally.
A global study by IBM found that 71 per cent of employees and employment seekers consider environmentally sustainable companies to be more attractive employers. In Australia, workers are calling for their employers to improve their sustainability practices.
What are the principles of ESG leadership?
There are a number of components of ESG leadership, some of which include:
Systemic thinking
ESG leaders view their organisations as part of a larger ecological and social system, and they make decisions accordingly.
Rather than focusing on their businesses’ bottom line without considering the external impact, these leaders understand decisions made within the company can have far-reaching impacts beyond immediate business concerns. This approach considers planetary health and the role of organisations in creating a net positive impact.
Long-term strategy and vision
Where conventional leadership may focus exclusively on short-term financial performance, ESG leadership involves setting long-term goals that ensure the enduring success and positive impact of the organisation.
In practice, depending on the nature of the business conducted, this could be setting emission reduction targets, increasing diversity and inclusion within the organisation or transitioning to more ethical manufacturing processes.
Inclusion of stakeholders
In ESG leadership, involving diverse stakeholders such as employees, customers, suppliers, and local communities in strategy and decision-making is crucial.
This ensures all voices are heard and considered, rather than just those who may have a vested interest in profits over purpose or impact.
Diversity-driven innovation
ESG leaders facilitate innovation that integrates environmental and social considerations. Often, this involves rethinking traditional business models and processes to develop both profitable and sustainable solutions – such as fleet electrification (converting cars to electric power sources) to reduce fossil fuel emissions.
Transparency and accountability
Operating with integrity and honesty is a fundamental element of ESG leadership. ESG leaders openly communicate their sustainability goals, progress and challenges to all stakeholders – including staff, customers, community members and shareholders – to help foster trust and accountability, and avoid ‘greenwashing’.
Customers and stakeholders are increasingly expecting transparency and accountability from businesses of all types.
You may have noticed more dedicated ‘sustainability’ sections on company web pages or specific communications that outline how a business reduces its emissions, gives back to the communities it operates in and generally conducts its operations responsibly.
Social equity
ESG leaders prioritise social equity and strive to create inclusive, equitable environments within their business and beyond. It’s about recognising that sustainability isn’t just about environmental stewardship but also promoting equity and social justice.
In practice, this could look like ensuring fair wages and working conditions for offshore suppliers, advocating for human rights and environmental protection, or supporting relevant social causes through implementing a donation scheme with a chosen charity group.
Examples of ESG leadership in practice
Sustainable business practices can take many forms and will vary between organisations and industries. As responsible business increasingly becomes a baseline expectation for both consumers and prospective employees alike, more organisations will begin to incorporate sustainability into their business.
Some industry leaders are already setting a strong example. These include:
- Intrepid Travel: The small group adventure travel company has always prioritised sustainability but continues to update and improve its practices. These include hiring exclusively local leaders in the regions they visit, reducing single-use plastic on their trips and giving back via their non-profit, The Intrepid Foundation.
- Westpac: As one of Australia’s largest banks, Westpac has a major responsibility to act sustainably. Environmental, social and governance (ESG) is now integrated into its corporate policy, and sustainable finance options are included in its investment strategies.
- Boody: The apparel brand uses bamboo and sustainable blends to create its products to minimise their footprint. They also dedicate 1 per cent of profits to the planet and have a recycling partnership to reduce waste.
How can leaders build their ESG leadership skills?
‘Green’ jobs in the sustainability sector are rising, but the need for ESG-focused leadership isn’t limited to that industry alone.
As global awareness of climate change intensifies the spotlight on businesses across all sectors to do better, an understanding of sustainable business practices will be an asset for leaders who want to go the distance.
If consumer and employee demand isn’t enough to drive organisational changes, proposed government mandates certainly will.
With the Australian government proposing new laws for mandatory climate reporting for companies, the call for leaders who are equipped to drive sustainable practices is growing louder – but it can’t be answered by just anyone.
Those who truly want to operate as effective ESG leaders must have a solid grasp of global trends and ESG leadership strategy.
Australia’s first-ever postgraduate ESG leadership course, ECU’s Graduate Certificate of Environmental, Government and Social (ESG) Leadership, is 100% online. By graduating from this course, you will also have the option to further your studies and study ECU’s reputable MBA with credit.
This industry-shaping qualification is designed for leaders who want to survive in tomorrow’s complex business environment and contribute to improving it.
ECU Online’s Graduate Certificate of Environmental, Social, and Governance (ESG) Leadership is designed to equip leaders from all professional backgrounds to confidently lead sustainability initiatives.
Join a wave of new graduates who want to be part of the solution and advocate for a higher purpose. Speak to one of ECU Online’s Student Enrolment Advisors on 1300 707 760 or find out more.
