Environmental investing is receiving a lot of attention as the impact of the climate crisis becomes ever-more pressing.
At the same time, corporate governance standards are evolving to support more sustainable business practices. But what about the ‘S’ or social side of ESG – how companies treat their own people and the societies in which they operate? This has a broad focus, and can be difficult to define, but is just as important. Increasing transparency and consumer activism have brought social issues to the fore, heightening the need for companies to respond.
Financial services firms need to ‘walk the talk’ and make sure their internal processes and the way they treat employees, suppliers and communities reflect good intentions – and this does not just apply to the funds and financial products they deal with. This new approach to internal operations is part-and-parcel of the shift away from a shareholder-focused capitalism that treated anything outside the business as something ‘external’, to be ignored or diminished, and towards something more inclusive and sustainable. Today, business leaders in every sector around the world are addressing the fact that everything is connected, and that has consequences for employees, customers, suppliers, regulators and all stakeholders whose support they seek.
Inviting collaboration and diversity
But putting these new practices in place is bound to challenge orthodoxies. Writing in the FT, economist Dambisa Moyo noted that the ESG agenda has many companies on the defensive. Boards are worried about meeting the demands of environmental and social justice activists, leading to risk aversion in allocating capital, when innovation and boldness are required.
To foster greater innovation and creativity, many financial institutions are embracing design thinking. This approach brings ‘the human factor’ into the centre of decision-making, putting people’s nuanced, and even tacit needs at the heart of the innovation process. Design-led initiatives often start by facilitating collaboration with voices not usually heard in the organisation. Taking on board different perspectives that represent diversity of age, race, gender and thinking styles can be invaluable for orienting strategy towards a future that looks increasingly complex.
The workforce as an ecosystem
Management practices, systems and processes are often designed from an internal perspective, by and for employees. However, in today’s fluid labour market businesses increasingly depend on external workers and other types of contributors. By conceiving of the workforce as an eco-system, it’s possible to create models that trace the connections between people, services and products. This can help decision makers understand complex, dynamic and unpredictable situations.
And in order to steer a path through these complex situations, financial services companies need to be clear about their purpose beyond making money. In the current environment, a narrow focus on the bottom line is unsustainable, and represents bad business practice. High standards of social – as well as environmental – governance) have been proven to be more profitable in many cases. But that can’t be the only reason they are adopted, or long-term sustainability is compromised.
Aligning intention with action
Human-centred innovation projects can be the first step towards clarifying business purpose and enacting meaningful change. Instead of shoring up unfair systems, financial services firms can grow in a way that includes people from all backgrounds and is more supportive of the communities in which the business operates.
Having an authentic business purpose means knowing and speaking your true intentions. However, the complexity of real-life scenarios means outcomes are often different from intentions. Using design tools and collaborative change techniques, it’s possible to work through the steps required to align intention with action. When people understand and get behind your plan, they will execute it. Authenticity is demonstrated when what you say you are is matched by how people experience you. And when your strategic plans translate into tangible customer experiences, you have real impact.
Every business is part of society, in a relationship of mutual responsibility. The ESG agenda means that companies must meet the current challenge to become more socially oriented and embed meaningful change in their systems and processes. Collaborative, design-led innovation can be the key that unlocks the potential benefits, within and beyond your business.
This article was first published on the European Financial Review.