Carrot or Stick?

The regulators are coming. Whether mandatory climate disclosures, greater environmental standards or diversity disclaimers, regulators actively seek more accountability.

Halfhearted, token efforts are no longer enough. You’ll face the stick of regulatory scrutiny for “greenwashing” as well as your actual carbon emissions levels.

Regulation is not the only driving force behind greater adoption of ESG principles. You have to write your own rules.

This may involve using excess capital to invest in climate-focused technology. It may mean setting higher internal prices of carbon or encouraging greater awareness of sustainability among employees. Regardless of whether regulators act or not, adopting ESG principles will still be mandatory. Your customers and consumers will ask about climate policies. According to CDP Worldwide, 2020 witnessed a 24% spike in companies asking their suppliers for environmental transparency. The direction of travel is clear and its likely to be one-way traffic.

Consumers have a plethora of tools to assess your business. Payment apps can offer snapshots of individual carbon footprints. The introduction of initiatives such as carbon labelling will make customers more conscious. Their growing awareness and advocacy for ESG adherence will out pace regulators.

We’re already seeing companies ‘self-regulate’ by setting and owning environmental standards before regulators have the chance to draft and distribute policy.

This isn’t unique to climate. Customers are increasingly driving change in supply chains. You’ll need to answer some difficult questions: is your supply chain free of forced labour? Is there a yawning gender pay gap within your organisation? Is your product ethically viable?

Again, action is demanded before regulation arrives.

Consider facial-recognition technology and associated social concerns. Developers have long sought regulation but, losing patience, already taken the initiative by announcing temporary moratoriums of related technology.

Regulation remains reactive. Business is proactive. Those genuinely pursuing and promoting sustainability performance won’t wait for the regulators to offer direction.

The carrot of good culture - and great business - leads.