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Time to change our habits! ESG and organisational change, more than measurement.

I've previously written about the challenges of organisational change in the wider ESG and sustainability space. I discussed three key considerations for enabling the organisational change required to deliver an ESG agenda in that blog. In this post, I will discuss the need to develop new habits that will assist organisations in operating in a long-term, sustainable manner.

Without looking too hard, it's possible to find commentary on ESG that seeks to answer questions such as these: What is preventing organisations from taking more significant action in response to the climate emergency? Why do we prioritise ESG as a measurement and reporting system? And why do so many businesses engage in greenwashing? I'm not satisfied with the immediate answers to these questions.

The answers often follow these: The complexity of business systems prevents action on the climate emergency. There are so many moving parts that rapid change will be too disruptive. We focus on ESG measurement because what you don't measure doesn't change. Organisations resort to greenwashing because change is difficult, yet their customers and society expect it.

For me, these questions and their answers are only a partial truth. When we advance them, we collectively look away from the bigger challenge and more important questions individuals, businesses and societies need to ask.

Let us begin with a simple but stark fact. It is natural to resist change. It's human nature to resist change, and if we didn't, life would be absolute chaos all the time. Our morning routine would be different every day, or we would lose all standardisation. For example, we need multiple electrical adaptors to plug in our kitchen appliances. Once we have an established way of doing something, we have formed a habit as an individual or an organisation, and it is relentlessly hard to break. Smoking is a good example, but so is the habit of air travel.

To change, we must disrupt deeply ingrained habits or routines. It took Covid to break the habit of flying to meet someone in the global economy and large businesses, charities, and individuals. While not everyone is fortunate enough to fly regularly, the idea that you can travel for work or pleasure easily, cheaply, and quickly has become relatively uncontested. Nonetheless, covid has challenged us to change a habit, go online, and communicate in a new way.

Covid compelled society, business, and government to respond quickly to a significant change in how the world works. This is not the same as a climate emergency. While wildfires, extreme weather, and islands lost to the sea are deeply traumatic and disruptive, our global society is not directly affected. These events do not disrupt our global habits of consumption, travel, and integrated service delivery quickly enough to force the world to change its habits.

The point is that changing our deeply ingrained habits is extremely difficult! It is why global society has made so little progress in diversity, equity, and inclusion. According to a UMass study, there have been only minor changes in DEI perceptions in the workforce over the last 50 years. A Harvard Business School study on the failure of diversity programmes found that most programmes fail because they focus on compliance rather than creating new habits in organisations. It is this that is preventing large-scale change, and it is for this reason, we must shift our focus from measuring impact to assisting businesses in changing their business habits. What habits must our company change to become a more environmentally sustainable, socially responsible, and well-governed organisation?

Inquiring about a company's habits and culture is not the same as asking what we should measure and how to change our supply chain to get there. It is a question that focuses on the company's identity. It's not surprising that this question isn't asked more frequently; it's a fundamentally difficult question to ask yourself, let alone your organisation. However, we are unlikely to see long-term change unless we ask ourselves this long-term question.

How do we know this? First, a strong body of research focuses on what enables organisations to change. In particular, it looks at changes in business identity (say around DEI). This evidence has shown (see the UMass report) that without changes in an organisation's systems, processes and culture (its habits), changes in the way individuals think and work don't happen. Second, we have successful and often cited examples of businesses becoming more environmentally and socially responsible. We see a change in habits at the centre of what changes occur. Both Patagonia and Unilever made significant changes to their organisational habits and the habits of their customers to become more sustainable businesses. This short blog on the Patagonia experience highlights how important building habits and changing beliefs was for Patagonia to become a sustainable business.

So what can you do? And you might first ask, "why doesn't measurement alone lead to this change?" Targets and reporting standards are certainly one tool in the wider change tool kit, and they may even be the way in for advocates of a wider change in habits and behaviours of the organisation. But, measurement isn't the end goal because we focus on what we measure to exclude other things. This is Goodhart's law. "When a measure becomes a target, it ceases to be a good measure" because we start to work towards the target rather than the change the measure implies.

Suppose ESG targets are only a gateway into changing behaviour. What activities are necessary to change the habits of the organisation? Here are five key actions that stand out from my work and reading of the wider literature.

It starts at the top. How an organisation sets or changes its culture will be led from the top. I'd love to say this isn't the case, but change starts from the organisation's culture, which is set from above, and reinforced from below. If this culture and habits need to change, leadership will create this. Who the board chooses as their CEO, MD, or President plays an important role in creating the environment for change. This includes being willing to change your leadership team to create a climate for change.

The literature often cites the idea that a servant leader may play an important role here. While the evidence is mixed, there is agreement that individuals who see themselves as servants of the organisation will take a longer-term view and look at wider stakeholders in the business. Paul Polman is a great example of this style of leadership. However, it is not clear that Servant leadership is the only style that drives 'sustainable' change in organisations. The real key is making sure the Board and leadership team are clear and share common objectives for the organisation's long term behaviours and habits.

The real key here is knowing what type of business you and your stakeholders want. You need to be able to answer this question: "Is it better to have a $100 million company that doesn't make money or a $10 million profitable company? A company is known for its service, generosity, and happy, dedicated workforce rather than its size?" - Bo Burlingham Small Giants.

It takes reflection. Individuals and organisations need to look at themselves. What do they do well, and not so well? Where are their behaviours not aligned with long term sustainable ESG objectives? This is where measurement can help provide a mirror to identify areas of progress and where the organisation faces a challenge. The key is to create a reflective space to identify the gaps and allow the organisation to identify the behaviours or actions that prevent it from becoming a more sustainable business. The challenge is, of course achieving, a Harvard study found a business leader who reflected at the end of the day was 20% more productive than one who didn't. The challenge is creating the habits to do this. This blog provides some useful advice.

Structure the habit. Don't neglect the organisational systems required to make the behaviour stick? If you want to create a new habit, it's always helpful to create a conducive environment. You might set yourself reminders, remove all the sugary drinks from the house, etc. The same goes for businesses. Suppose you want to create a new business habit or way of working. In that case, the company must visibly embed the changes in its environment, from prompts on computer log-in screens to regular communication from leadership to systems to simplify or require people to think about their activities’ ESG objective or impact. This blog by McKinsey gets into some of the tricks businesses can consider when trying to create new routines.

Define the behaviour. Understand what behaviours you need to see in the organisation. Break these down into actionable chunks. Get leadership to model these behaviours and reinforce and practice the behaviours. This is easier said, but it takes a lot of work, and in practice, you should expect many mistakes and missteps along the way. This blog by Julie Diamond provides a useful summary of how to think about behaviours within the DEI space, and it remains relevant to ESG.

Get the right skills. Not enough emphasis is placed on the challenge of getting the right skills in place. An organisation cannot change if it doesn't have the right skills to make those changes. Understanding what you want to change and developing and bringing in the right talent and knowledge is critical to the evolving habits, with the caveat that you have to get the organisational culture right. It's no use bringing an expert in decarbonising a supply chain if your teams and suppliers aren't already open to the idea that they need to adapt.

It would be great to end this post by telling you that this is easy. But we all know that it isn't. It's extremely difficult, which is why there are over 60,000 books on leadership and change on Amazon. There is no one way of doing this. Still, we have to start, and we need to build a greater awareness that ESG is not just about setting targets and signing up to measurement frameworks. It's about finding ways within organisations to create new behaviours. Some of this change will be demanded by your employees and wider stakeholders. Wouldn't it just be better to get on with it now?


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