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Purpose and Stewardship

Complimentary paper and checklist: Purpose and Stewardship — Embedding ESG at all levels of the organisation

In May 2023, LexisNexis chaired a discussion at the GIA Government Risk Management Forum (GRMF), with the University of Adelaide academic and ESG expert Dr Tracey Dodd; and Robyn Parkin, Head of Sustainability at Ethical Partners Funds Management. This article provides insights directly from that discussion. It provides thought starters on how to explore the practicalities of purpose and stewardship, identifies what boards and senior leaders need to do in order to centralise strategy, and cascade a robust ESG framework throughout their organisations.

Setting the scene

Across all businesses, the Environmental, Social, Governance (ESG) articulation of organisational strategy is fast becoming the favoured lens through which business priorities are considered, achieved, and measured. But as with any paradigm shift, the adoption and implementation of ESG frameworks is at varying stages in different organisations. If businesses are to establish themselves as leaders of the communities and societies we want for the future, they must be able to manage the short-term challenges to deliver that ESG vision.

The visibility, efficacy and success of ESG approaches will only become a more fundamental contributor to businesses’ social licence to operate in the future. As societal awareness of the impacts of business have grown, this has now become an existential threat – something that can determine the longevity and sustainability of a business or product.

Two notions are key here: purpose and stewardship. Understanding how they interact is important. In a time where simply being in business to provide shareholder value is no longer enough, the articulation of a clear and meaningful purpose statement is one of the most powerful tools in bringing ESG vision to fruition. That articulation then drives a sense of stewardship across the organisation, from the board down. Stewardship is defined by Dr Tracey Dodd as the willingness of an individual or entity to take accountability for and act in the long-term interest of either a business, a group of businesses, or the environment. Purpose and stewardship work harmoniously to help organisations achieve two key tasks in delivering ESG vision: building a centralised strategy and decentralising its implementation and ownership.

Embedding ESG from the top down: a two-part framework

1. Developing a centralised strategy & vision

‘One of the greatest tools you can use in your business is your sense of purpose,’ says Dr Dodd. Research shows that an organisation’s purpose statement determines how employees relate to the business. ‘If the purpose statement is just focused on business, research shows employees will become stewards of the business. But if the purpose statement has a broader impact, it enables and facilitates greater action.’

‘We also think defining purpose is essential,’ says Robyn Parkin. ‘Former Unilever CEO Paul Polman made the point that despite having the tools and technologies available to meet all the UN’s Sustainable Development Goals, the world is currently only on track to meet 12%. So we’re failing badly. But the difference between businesses who are and are not making a difference is mindset. And that’s what needs to be articulated in a purpose statement.’ The mindset shift Polman refers to is, in essence, a sense of stewardship: that directors, management, and employees are responsible for guiding the organisation’s impact across the ESG framework.

Strategy starts at the top, and as fiduciaries, Company Directors have long been considered stewards of their companies. But this is changing to embrace a broader definition of stewardship that encompasses the community, and environmental impacts of a business. ‘There have been rulings that say, under the Corporation Act, you have a moral and legal obligation to think about the impact of your business, on the community in the long run,’ says Dr. Dodd. ‘And there are moves in the EU where people are being held legally culpable, for the environmental impact that they are having in society. So, it’s no longer just a normative ethical claim that businesses have to be good citizens. It’s actually a legal interpretation.’

But when it comes to the upper levels of an organisation, the carrot of purpose can be just as effective as the stick of regulation in building stewardship. For both existing and prospective board members, having a clear understanding of organisational purpose will intrinsically guide decision-making, risk appetite in certain areas, and prioritisation. It can also serve to assist in recruiting the right people for senior roles to ensure the ESG vision is delivered over time. ‘The average tenure of the CEO is about five years, so long-term thinking becomes even more critical,’ says Ms. Parkin. ‘It’s about stewarding an organisation, it’s not about the person – and for truly purpose-driven organisations this often plays into a different form of leadership as well. It’s not just about the CEO, CFO or even the board. It’s about thinking of the business as a long-term entity that you are stewarding.’

2. Decentralising deployment & ownership

While strategy starts at the top, its deployment and successful implementation is dependent on whole-of-business alignment, and both purpose and stewardship are essential here too. Purpose drives stewardship among employees, and it’s this sense of stewardship that will drive continued progress through the diverse functions of any organisation. Responsibility is essential in deputising each member of a business to deliver on the strategy.

‘Old management theory would tell you that we’re all after money, so you’ve got to incentivise people,’ says Dr. Dodd. ‘But stewardship theory says no, people really care about purpose, and you’ve got to give them something to buy in. The reality is that it’s somewhere in the middle, and it’s not good or bad to be one or the other.’ But Tracey Dodd’s research shows that there is a causal link between articulation of purpose and stewardship. So as organisations look to decentralise their ESG approach across the business, having a clear purpose becomes even more important.

‘It’s not about a checkbox,’ says Robyn Parkin. ‘It’s about fundamentally changing the way you think about your business and not being tokenistic. The staff can tell if your approach is tokenistic. So, it’s about moving beyond simple compliance, to really embedding your ESG vision as business as usual.’

To access the full article which includes checklists, click here.

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