How ESG could improve performance

Is all publicity, good publicity? No sorry. It does not work that way any longer. We live in the era of social media, and when things turn out to be negative, often stay that way. As I dig deeper in the economy model advocated by think tank at the Davos forum, where the shareholder capitalism makes room for the stakeholder economy, I appreciate the importance of ESG metrics. Let us break it down into digestible bites.

First of all, capitalism is based on profit. Companies are supposed to return profits to the shareholder. It is true for small businesses, and equally true for publicly listed companies. However, over the decades, some cracks appeared on the wall of capitalism. Such cracks being pollution in industrial production, workforce exploitation, or general malpractices in management. Thus, parts of the general population - stakeholders - were affected negatively, while the shareholders were profiting handsomely.

A movement emerged demanding for greater company accountability when it comes to reporting on Environmental, Social, and Governance matters. This movement is today represented by ESG, and translated in measurable steps for companies to become more sustainable in the long run. From the profit perspective it is debatable whether the ESG compliant companies perform better. On the other hand, studies show that were ESG measures put into place throughout the past decade, many business related scandals could have been prevented.

And on the growing wave of ESG, a multitude of startups have begun rolling out products able to support individuals and companies open to the idea of a new type of capitalism. A company called Blind come up with an anonymous platform that allows employees to openly discuss about issues and malpractices happening within their workplace. Launched in 2015, Blind raised a $37 million Series C funding round led by South Korean venture firm Mainstreet Investment along with Cisco Investments and Pavilion Capital, a subsidiary of Singapore sovereign wealth fund Temasek. After onboarding thousands of employees in major corporations, Blind helped uncovering a case of sexual discrimination occurring at Uber. The conversation on the platform increased the magnitude of the scandal affecting CEO Travis Kalanick and Uber’s CTO Thuan Pham. Uber even attempted to prevent access to Blind in order to damage control, but resulting in the opposite outcome. Bad publicity for Uber. Great publicity for Blind.

Another startup called Loominate is taking the success of Blind and combining it with the power of blockchain to bring radical transparency and crowdsourced transformation into the workplace. Loominate is a pseudonymous platform where employees connect, collaborate and undertake grassroots initiatives with their co-workers. "Not only to raise concerns but be rewarded for contributing to bottom up change and culture building” is the goal according to the co-founder Jamie Choo.

What is brewing in the stakeholder economy are some powerful trend and inflection points. Gen Z online pseudo communities such as Reddit and Discord, Gen Z purpose based workplaces such as new drive for unionisation, and being heard in general, Diversity & Inclusion, Mental health, social empowerment movements, tokenised rewards via blockchain, web3 bottom-up innovation, etc.

ESG is contributing to the overall well being of teams and employees. Often, being heard, opens up to the realisation of not being alone. Several researches have shown that when employees feel safe to share openly, tend to perform better. So, while ESG is not a guaranteed success, it is already contributing to global business transformation.