Harvard University

This week, I encountered three new ideas for inclusion into Environmental, Social and Governance (ESG) ratings, namely mental wellness, responsible use of artificial intelligence (AI) and Multi-National Companies’ (MNC) contributions to the stakeholder communities’ social well-being, the workforce’s professional development and other positive initiatives for the countries in which they operate in.

On one hand, the media has reported that there is a large gap between the companies’ ESG reports and on-site implementations. The current narrative is that companies are signing a lot of MOUs and pledges, committing to a lot of sustainability goals and submitting a lot of ESG reports with beautiful graphs, plots, charts and content, but these are not translated into real action.

We need a lot more capabilities in recognizing, measuring and assessing ESG risks. ESG risks already manifested in many forms such as environmental impacts, workplace safety, fair consideration for employment, diversity and inclusion issues, proper mechanisms for grievances, stakeholder community management, etc.

All these combine to increase substantially the workload of the front-line staff. I see that we currently have three ways to go about solving this.

First, hire more people with ESG measurement and assessment skills to perform worksite inspections, outsource ESG measurements and assessments to external consultants or inspectors, train existing staff on ESG-related skills and/ or enhance technology capabilities in recognizing, monitoring and assessing ESG risks. These options are not mutually exclusive and can merge to create a variety of additional solutions.

Second, we will need the expertise of domain specialists to help with mitigating the identified ESG risks. When I bring up domain specialists, it is not just the technical experts in the area of carbon emissions, waste reduction, sustainable procurement, etc, but also the people who can contribute their skills in improving gender diversity, workplace safety, corporate and community grievances mechanisms amongst others.

Third, the entire organization has to be regularly trained to maintain awareness of such issues. The training could be delivered via on-site workshops, video meetings, and online training modules with or without quizzes or a hybrid of all of the above. Additionally, someone must be responsible for keeping the lines in check. It could be the Chief ESG Officer or Chief Sustainability Officer, together with one or more board members or directors with clear sight on these metrics.

Without a proper system in place, the entire exercise could become a one-off event and eventually fade into nothingness.

Now, we already have a lot on hand and that is just to satisfy reports and audit requirements. Moving forward, we need to put forth a whole lot more effort towards implementation. In reality, true transformation takes time and changing habits requires discipline. This means that we need to focus a lot more peoples’ attention towards this target for a longer period and it is definitely going to be draining.

There is going to be even more work if we include mental wellness, responsible use of AI, and MNC’s contributions to the countries that they operate in.

At this point of writing, I only have five thoughts about this.

One – anyway we already have so much work going on so we might as well pile on these considerations and strike while the iron is hot.

Two – adding more considerations at this time when we are not even executing well, could lead to widening the gap between reporting and implementation.

Three – increasing the workload at this moment when the supply of ESG expertise clearly lags far behind the demand for ESG expertise, is a sure-fire way to further stress the system and staff.

Four – we need more software capability to augment current workforce and ease the burden that is fueling the Great Resignation.

Five – public and private sector will need to work hand-in-hand to reach an acceptable equilibrium.

Among these five broad elements that I can think of right now, it is clear that they are more or less within the domains of the proposed inclusions i.e. mental wellness, responsible use of AI and MNC’s contributions to the countries that they operate in.

Going overboard with the implementations might actually foul up the proposed inclusions. Why? We might disturb the mental well-being of staff if we add on more criteria without considering carefully the additional workload. We could be the cause of more staff layoff during the pandemic because it is cheaper to deploy software capabilities. MNCs might find themselves in a tougher business landscape and may delink themselves from the countries that impose increasingly stringent criteria for business operations.

So, should the new criteria be included or not?

In short, this is the chicken and egg paradigm whereby we will be stuck in an infinite loop if no actions are taken. As usual, the way to break through the chicken and egg paradigm is to simply focus on one key path, to forge the way forward, with mechanisms in place for future adjustments and calibrations.

Some governments would not care less about MNC’s positions at all. Already I see that there is a trend in many countries to deleverage from MNCs; increasingly requiring them to work with local partners, surfacing issues like the treatment of tax and profits, stipulating better data protection within the local R&D community and others. This is not new, but the trend is definitely stronger now and the new policies reflect that.

In fact, there are already some that are placing more chips on local enterprises so that they could square off with the MNCs in the future. Policies are being shaped at the highest level to favor local enterprises to build self-resiliency.

Some of these MNCs are also facing increasing regulatory pressures from their countries of origin. I observe these patterns with great interest.

At the other spectrum, others are encouraging MNCs to establish presence and work in their respective countries. So, there is certainly going to be more shifts of investments and human resources, and this certainly calls for attention as consideration for shaping ESG frameworks.

Aside from this, the responsible use of AI is an equally critical topic. To be honest, most of us are already well-aware of how software capabilities can augment human workers and to some extent, replace some workers as well. Especially when work is increasingly translated to digital format, and this makes it so much easier for automation.

Digitalization is the perfect pathway for automation in the future, and to reduce reliance on human workforce.

One of my friends used to work with labor unions in the United Kingdom and she often surfaces this experience as one of her trump cards when discussions touch on life achievements. Even then, she never wants to find work in this area anymore.

Societies are carefully propped up by myriad of intricate constructs, one of which is for people to be gainfully employed with meaningful work that pays enough for daily expenses, mortgages, other debt commitments and some more. Integration of AI without proper consideration on its impact on the larger ecosystem, can lead to unbalancing the society’s pillars.

We need more transparency and to encourage greater participation in crafting and co-creating this future that is jointly owned by all people.

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