Should the G in ESG also stand for Government relations?

(A guest post by Martin Summers)

McKinsey research suggests it should.

Investors increasingly recognise that companies need to have the right governance in place and the ability to manage environmental and social factors (ESG) if they are to mitigate risk and create value over the long term.

It’s also becoming increasingly obvious that some of the greatest commercial opportunities and risks relate to government. But ESG and sustainability practitioners rarely factor this in properly.

A company that cannot influence government effectively is not truly sustainable.

A company with outstanding ESG credentials but an inability to influence governments or manage their impacts cannot be considered truly sustainable. Uber is a just an app with nowhere to go unless it gets local and national government buy-in.

A recent McKinsey survey shows that senior executives are not getting what they want in this regard. While half the executives surveyed cited external relations as a priority for their firms, less than a quarter thought their business was particularly effective at it, i.e. “frequently successful both at shaping government policy and/or regulatory decisions and at managing their corporate reputations among civil society groups.” You can’t influence government if you can’t influence their stakeholders.

Achieving policy leadership is part of being a sustainability leader

Sustainability leadership is typically considered in terms of establishing leading practice, driving industry thinking or initiatives, but this is rarely translated into a policy leadership strategy.

Policy leadership means articulating a clear vision and narrative for a sector and developing a constructive long term agenda for it. This means not only developing and advocating clear policy principles and proposals, but taking the lead in working with governments, experts and civil society to develop the right mix of policy and public and private sector initiatives to tackle near-universal sustainability issues; most obviously in transport, housing, energy, healthcare, infrastructure and education.

The policy dimension of sustainability

Policy leadership needs to be complemented by a sustainability strategy that demonstrates how the company is doing its part to tackle these issues, in its own right and as a driver of change in its sector. It’s easier to argue for less red tape to help SMEs in your supply chain if you show how you help SMEs through training and finance.

Policy leaders should also show how sustainability initiatives need enabling institutional environments. Efforts to promote sustainable agriculture will have a limited impact if the absence of secure land ownership rights means that a smallholder has few incentives to invest in their land. Similarly, voluntary initiatives to promote better labour standards in factories should be complemented by efforts to persuade governments to invest in well-resourced and effective factory and building inspectors.

The narrative advantage

McKinsey identifies the capability to build fact-based narratives that support policy positions as a key factor in separating companies that are successful at external affairs from those that are not. This is hardly a surprising discovery. A company can’t expect politicians and regulators to take them seriously if its strategy and narrative doesn’t reflect the issues facing them.

A strong, clear and credible narrative is an effective way of bringing together the often disparate disciplines of communications, sustainability and policy. Where possible, a company’s narrative should reference its business environment and the forces that are shaping it – from societal expectations to demographics and regulatory trends. A sustainable company should be able to tell a story about how and why it will thrive in the future.

Sustainability teams also need to work much more closely with their government affairs colleagues in order to identify and advocate policies that will help achieve sustainability and other corporate goals. They also need to ensure that the policy agenda supports and informs corporate strategy and gets board buy-in. A reactive and tactical approach to policy issues is no longer viable or sustainable.

Martin Summers is a Consultant at Bladonmore. Martin.summers@bladonmore.com

Previous guest posts by Martin Summers:

Can Conscious Capitalism work?

Local Content – a missed multi-billion dollar opportunity

Sustainable supply chains: Time to treat smallholders as businesses

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