The Best Way to Achieve ESG is to Stop Confusing it with Resilience
UncategorizedTuesday September 21
In their recent article ESG is Missing a Metric: R for Resilience, Saadia Madsbjerg and Judith Rodin are less than optimistic about the ability of global leaders to translate massive government-sponsored windfalls for addressing climate change into the impact those investments seek.
The reason for their skepticism might not be what you think.
It is not government or corporate corruption, the inefficiency of large state projects, the intransigence of climate deniers and stragglers, or even (and especially not) a shortage of funds.
They believe the problem is metrics.
As in – how do we know if things are improving? How do we know if we are doing the right things or enough of them? What are the indicators we should be tracking?
They say the traditional metrics for Environmental, Social and Governance (ESG) are insufficient.
According to Madsbjerg and Rodin
In a world of increasing upheaval, ESG investors must also be able to assess resilience.
The authors address the goals of the 2021 Earth Day Climate Summit, particularly the role of financial markets in evaluating potential investments in light of environmental, social and governance factors.
They point out that while there are widely used sets of metrics for ESG, similar progress has not been made in developing and standardizing metrics for resilience.
It is frequently the case that resilience is conflated with (or even considered synonymous with) environmental sustainability.
But if resilience is to include in its scope the resilience of human civilization, we must consider many other factors. We must consider them especially if we want to actually arrive at truly workable ways to address environmental issues.
Metrics speak to how we make decisions. What do we measure to know where we are? How do we best decide where we need to go first, then next? How do we know when we get there?
In fact, the issue they are highlighting is as much about the way we govern nations, corporations and communities as it is about the way we measure the progress of that governance.
The governance (G) in ESG is not the governance that manages the risks and opportunities of the entire enterprise. In ESG governance is about a narrow but important subset of those issues (Environment and Social). Measuring and governing around these issues has merit, but conflating them with the resilience of an organization or civilization is a fundamental, and potentially costly, error.
Nowhere is this better illustrated than in the prodigious efforts of the Rockefeller foundation around resilience, of which author Saadia Madsbjerg is is a former managing director. The Rockefeller Foundation Resilient Cities Initiative was promising; offering funding to create Chief Resilience Officers in 100 global cities and committing over $160M to efforts to build urban resilience. I was so excited about this initiative when it first emerged I actively encouraged my hometown of Charleston, SC to apply to be one of the 100.
I thought that the Rockefeller foundation wanted cities to be more resilient by ensuring that they could continue to serve their populace well as conditions affecting them changed. In fact what the Rockefeller Foundation largely meant by resilience was enabling the natural environment around cities to continue to function by minimizing the risks that the city poses to the environment, and preparing cities for the potential threats of climate change.
This emphasis is not without benefit to the cities. If the natural environment of a city is degraded or changes, the city itself suffers may suffer disruption as well.
But here is where reality exposes the difference between measuring ESG alone and measuring the holistic resilience of a city.
Environmental risks are only one set of the many risks with which the governance of a city must contend. A definition of resilience that focuses on that one set of risks may be well-intentioned, but reality will soon show the necessity of considering them within the broader risk picture.
The irony is that in failing to foster resilience programs that brought cities into full spectrum management of risk, the Rockefeller Foundation denied cities the one thing they most needed to responsibly commit to environmental sustainability: the ability to weigh environmental risks within the entire set of risks the city faces and articulate the effect of one on the other. Only in this way can a responsible business case be made to the taxpayer for environmental risk management. Only then can we move beyond making a moral case for addressing environmental risk into finding practical ways of doing so.
Despite the good intentions of the program and the prodigious level of funding, this failure to view the resilience of cities holistically kept environmental sustainability from earning a true place in the executive agenda of municipal governance.
Cities took the funding, but what was produced was essentially an externally funded lobby for environmental concerns rather than an internally grown resilience capability.
Ironically the 100 Resilient Cities Initiative was therefore not – well – sustainable.
In April 2019 the Rockefeller Foundation inexplicably defunded the project after six years, providing a shock to its over 100 staff and to the 100 cities, many of which had established the CRO position and were taking steps to develop programs.
The reasons for this defunding have been the subject of much speculation. The key to a successful change of behavior as a result of grant funding is the ability of the recipient to use that funding to build something that is in the long run sustainable without that funding. Did the Rockefeller Foundation see the handwriting on the wall?
If the Rockefeller Foundation had used these grants to catalyze resilience programs which allowed the holistic management of risks, these programs would have proven their worth in improving the resource allocation and planning of the cities, and the Chief Resilience Officer would have gained a permanent place at the table of the Metropolitan governance agenda.
By presupposing that the outcome of a discussion of risk and resilience in any city must only (and strongly) favor one highly visible set of risks (the environmental), the CRO started with a credibility deficit from which it was difficult to recover.
A golden opportunity was therefore missed to make these cities more responsible managers of the whole risk agenda facing their citizens.
The sad irony is that it was that failure which hamstrung the ability to make a credible case for the risks around environmental sustainability that was so badly needed.
Madsbjerg and Rodin are correct that we need to go beyond ESG metrics to resilience metrics (and the governance that goes along with them). Trying to use risk management as a tool to advance a preconceived agenda, no matter how important it is, produces a risk management without credibility because it assumes the mitigations needed before the process even begins.
The way forward to responsible and credible management of environmental risks is to manage them the same way we manage other risks: as a part of a comprehensive portfolio and in terms of their effect on the missions that we are seeking to achieve for civilization as a whole.
Author: Jeremy Boccabello, Chief Resilience Officer, Covenant Park Consulting