In recent years we have witnessed how the introduction of technologies has changed the world around us. Gen Alpha or Gen Z do not really accept or recognize the term digital transformation, as they were sort of born into it. My kids do not know the world before the smartphone, or shopping online. For Millenials - there was no world without the internet. The pandemic accelerated the transformation even further with the emergence of work from home and acceleration of moving to the cloud. And some of us boomers even know the world when a TV was a luxury and calling someone was done via a rotary phone.
If we look at what enterprises went through right before and during the digital transformation we can identify a pattern that we call “digital transformation journey”. Different enterprises started the digital transformation journey at different times. The beginning of the journey mostly started by nominating someone from within the firm as leading the innovation. Titles ranged from Head of Innovation to Innovation Manager, the role was more high-level, scouting, meeting with many startups to facilitate a “bottom up approach” or - “what’s out there”. There was no real budget or actual mandate from the leadership team.
The early adopters and the visionary CEO’s understood that this could give them a major competitive edge and so they declared, adopted and embraced digital transformation as a strategy, provided budgets to the heads of innovation, promoted them to executive roles, built innovation teams and started incorporating a “top-down” approach that connected the strategic roadmap and business challenges of the company to new technologies that could help them solve these problems.
Some companies built large engineering or data teams in-house to build capabilities, some collaborated with startups, some funded startups and some acquired. The culture and mindset change towards becoming an organization that embraces innovation made all the change and led to meaningful business impact. With time, lagging enterprises understood that in order to keep up with competition they had to join the ride and for some it was actually too late.
It is eventually the business impact that won the race, not innovation for the sake of innovation, not innovation for the sake of PR, but the connection of innovation to growth KPI’s and goals, the connection between innovation and business impact.
We find many similarities between the digital transformation journey and the ESG transformation journey. The ESG transformation started due to many different reasons such as a new generational culture and mindshift, stakeholder capitalism and not less important - regulation. The early adopters of ESG practices have appointed ESG executive VP’s, Vice Presidents or Directors at their firms, and have already built small teams of ESG. Most other companies are still in the early phases of their ESG journey and the responsibility for ESG practices or reporting lays not with one person, but falls between different individuals or teams in the organization such as IR, legal, compliance, HR.
In many organizations we see no one persona who is the primary ESG owner or who leads the ESG effort. Similar to the digital transformation, ESG encompasses many activities and touches significantly upon the firm strategy and so it touches upon almost every department in the organization. The firms with the highest ESG scores have at least one person, in some cases a full department, who lead the ESG report, efforts and activities , connects with other departments to collect and sync the information and circle back to strategy, understands what is right for the firm, sets plan with KPI’s and communicates with the board or top management.
Similar to the digital transformation, firms that would like to succeed in their ESG transformation, need to issue a statement from the CEO, external as well as internal. The language of the organization has to support the ESG efforts, the culture should be truly embracing of diversity and inclusion, and be environmental friendly and properly governance oriented. Attracting and maintaining talent today is a major challenge for all firms and all sizes, and a culture of ESG generates a common language and common goal, as well as attracts new talent.
For this to happen firms should truly consider nominating a dedicated ESG leader. This is an essential step for the success of ESG transformation. Firms that will nominate a management team member as well as budget towards ESG transformation will see the ROI later in their top line. Consumers are shown to switch brands towards ones that treat the environment and society better and that communicate it well. When leaving this to be handled by different departments, the responsibility falls between the cracks which could result with greenwash. I have seen it too many times throughout my career, if the company has a vague goal which is not under someone’s well defined roles and responsibilities, or rather, not in their bonus… it just doesn’t happen.
Nominating an ESG leader with a real mandate and budget is an essential step these days for ESG transformation and when coupled with the right tools and strategic intent will lead to true business impact.