Is ESG the new “Quality”?

For years companies have assiduously integrated quality systems within their operations. Is it going to be the same with ESG? Here’s a rejoinder.

In an odd manner, Environment, Social and Governance (ESG) has often been compared to a storm. The comparison stems from the disruption caused as companies integrate ESG fundamentals into their businesses. Yet, ESG isn’t a new phenomenon; it has been around for very many years, and the global Pandemic only upped its relevance. As COVID-19 raged across the world and businesses hunkered down, there was an increasing realisation that the principles prophesied by ESG had real-world relevance. And the companies that had adopted the principles had greater resilience than those that did not.  

So what is it about ESG that makes me compare it to “Quality”?

Let me start with a bit of flashback. Back in 2002, when I joined DNV, there was this rush to quality certifications. We used to get calls asking us how fast they could get certified for QMS (quality management system). The person at the other end of the phone would be panicky, stating that unless we showed evidence of a quality management system, the customer would cease their work, and for new RFP and tenders, it was a mandate.

Two decades on, I got calls asking how much time it takes to be ESG Compliant (In my earlier KPMG role). The person at the other end was panicky, stating that unless they better their ESG rating in three months, the investor has said that they will not continue with them. In 2022, ESG is a requirement in RFPs and is a requirement from customers in many segments. 

For the big companies. Right?

Wrong. It is a fallacy to believe that ESG is only for big companies. Take a clue from “Quality”. It is like surfing in the sea; the early you spot and catch the wave, the longer you can surf. In any case, the wave will bring you to shore; it is a choice whether you want to come surfing or tumbling and rolling. Quality became ubiquitous, and it is the same with ESG.

Compliance or Excellence?

We had seen what happened in “Quality” when companies took the compliance route. Compliance is only a small part, while value generation and competitiveness happen beyond compliance. Today, the leaders are the companies who moved quality as a business excellence journey. As regulations and standards around ESG are increasing (and evolving), there is a tendency for many companies to look at it as a compliance requirement. The quality evolution is good guidance for these companies. Repeating a mistake is a choice and a decision. 

ESG needs to be measured, benchmarked and planned for continual improvement in the excellence journey. Now, that sounds familiar, isn’t it?

Grappling for the skillset

We have also seen how there was a rush for “Quality” professionals in the late 90’s and early 2000. We see a similar rush for “ESG” / “Sustainability” professionals. The current race for ESG talent is more rapid than the quality one. The opportunity is exploited by many educational institutions that have started offering courses, and there is a rush to these courses. If we look at how “Quality” got integrated into any business, it would be good guidance on how to improve their competence around ESG. Quality got integrated into every process and function in an organisation. Quality is integrated into every process, not just production and service environment, be it human resources, sales, procurement, maintenance, etc. It is in the same manner ESG will be integrated into every process. The best way somebody can improve their competence in the ESG space will be to expand around their core competence. Suppose a finance professional is looking to improve competence around ESG, they should look at Sustainable Finance. A supply chain professional wanting to improve competence on ESG can do around sustainable supply chain. Similarly a Tech professional can expand to Tech 4 Good space. Like “Quality”, the central ESG Function will have to disintegrate over time. 

Quality needs to be an integral part of the ESG Journey, and ESG needs to be integrated into the quality definitions. That will ensure a Quality ESG advancement, the one that can ride the storm in peace. And just like in the past, how “Quality” was seamlessly integrated into the business operations, so will ESG. The earlier to start, the easier it will be. 

Isn’t history a good lesson?