ESG and the elephants in the room

There are more elephants in the room than you imagined!  

When we unpack climate and ESG, it is too big, so we don’t know what to do.  However, this post unpacks the “too big” so that we can individually identify the one thing we can all do that will make a difference. 

The 1st elephant in the room

Never teach an elephant to sing; it wastes your time and annoys the elephant.

This elephant represents the big issues: politics, geopolitics, policy, human behaviours, policing, crime, cyber-attacks, climate change, poverty, tax, ESG, economics, capitalism, growth, sustainability, vaccines, circular economy, transparency and equality as examples.  They are all so big and complex that we cannot get our heads around them.  No one person owns the problem.  We ignore those who go on about them often by putting them into the category of philosophies as I don’t understand or know what I can do, believing that my individual actions will make no difference. 


The 2nd elephant in the room

The blind people are asked about their understanding of an elephant but are limited to one part.  If you cannot see the whole picture but use a different sense to try and make sense of the elephant, you will likely miss something. How do you know your view is limited?  The message is that if you cannot imagine or see the whole elephant but are limited or framed, it means you only get the outcome you expected.  Our limits in experience, diversity, understanding bias, behaviour, path dependency, data structure means we are all blind but think we can see.

The 3rd elephant in the room

How do you eat an elephant? One small chunk at a time

It is too big to swallow whole, so cut up the big problem into smaller chunks.  What is the problem I have to solve today?  What is the work to be done?

It is easy to focus on and has items everyone can identify with, but someone must know it is an elephant to know the priorities and what tasks matter.

The 4th elephant in the room

When the client asks if you can do it cheaper. 

Where priorities, budgets and the economics of short-termism override long term purpose. 

Enough said. 


What can I do that makes a difference?  Knowing that the elephant in the room is more significant than anyone can understand (ESG, Climate, policy, behaviours, economics, geopolitics, humanity).  I have to accept that I cannot have a complete HD picture of how everything connects but must accept that I am blind, but I can sense a small part and owe a duty to connect and share. Together we will work out the first chuck we need to eat, knowing that we cannot eat it all at once.  

What can I do that makes a difference? 

ESG and Climate

We cannot individually do anything about it as it is too big, and my actions are too small. Some leaders do have a clear picture, but how can we break-up the big into smaller steps.  Whilst I hope we can debate about the steps’ priorities, there is one action that each of us can take.

The problem that is too big

The majority of our agreed economic understanding rests in several supply/ demand models; how we have implemented the controls of the models varies across the globe, including market forces, regulation, government (state control) and stewardship codes. 

Using a three-axis plot, where the axes are Values/ Principles, Accountability/ Obligations and Health of Eco-systems, we create an inner blue box in Figure 1 representing today’s overall economic market and controls.  The values and principles tend to focus on self, accountability tends towards an elected authority (self-appointed, director or elected in a democracy) and the health of the ecosystem is focussed on only the one that you interact with (prime) but usually to ensure your health and not everyone’s. There are many exceptions to this model. 

We understand from the Business RoundTable 2019 report that companies in western capital markets are encouraged to think broader and include values that benefit society and all dependent ecosystems.  The orange box in figure 1.

ESG thinking pushes all the boundaries further such that our values/ principles create a sustainable earth, society becomes accountable for its actions, and all ecosystems become healthy (this solves the boundary problem with circular economy thinking where you cannot ignore your actions have an effect on everyone else). This is the larger green box in figure 1

One elephant in the room is the requirement to move our economic model in three dimensions simultaneously.  Walking forward is naturally comfortable (one dimension). Running uphill is harder (two dimensions). Going forward, upwards and outwards by defying gravity for man is challenging; however, this is the big picture elephant of ESG.  Change everything at the same time.

Figure 1: The Big ESG problem

Should we move one direction at a time to make this more digestible?

There is a debate I believe we need to have in which direction we should focus as a priority?  Figure 2 offers a suggestion. How do we move from where we are to where we want to be, in phases and not trying to do everything at once.  However, whilst digestible, it might be too slow. We need to agree on a map, but who should own this?

Figure 2, where do we go first?

Where are we on the journey right now?

We are making progress for Directors to move from ShareHolder Primacy mandates to report on ESG Compliance Codes and more informed fiduciary duties. Audit (finance) is a mess and is not reliable, and it is not a solution for ESG. We are making progress with capital and investment markets with the addition of stewardship codes, forcing directors to comply as the investment basis they need starts to demand change. Thank you, Blackrock and Hermes.  We are at the early stages of ESG and using public data to make informed investment decisions. However, I believe public data ESG assessment a significant problem as it introduces quantum risk. ESG public data has three fundamental issues as the boundaries we are dependent on have become less clear.

1. The quality of the data and implied knowledge we receive from our direct and dependent* eco-system, even if based on audit for financial and non-financial data, is unreliable and is increasingly complicated due to different data proposes and ontologies.

2. The quality of the knowledge we receive from our indirect and interdependent** eco-system, even if based on audit for financial and non-financial data, is unreliable and is increasingly complicated due to different data proposes and ontologies.

3. Who is responsible and accountable at second and third-order data boundaries? (assumption first boundary is direct and already in control in our risk model) - the reuse of the same “data” in several justifications. 

* Dependent: balancing being able to get what I want by my own effort as contingent on or determined by the actions of someone else to make it work 

** Interdependence combine my efforts with the efforts of others to achieve successful outcomes together but does not have to be mutual or controlled

Therefore I believe we need to look at a much deeper level of data sharing to achieve sustainability, and the first step is an ESG API for data. 

How can we make this happen together?

Investment industry - move your power to follow and support those who implement a Data API for ESG data the quickest. Let’s get data with attestation to make better decisions.

Companies and Charities - collect the data and make it available publicly and not via a highly scripted and edited document.  Drive out multiple uses of the same data and greenwashing

Academic/ Standards/ Global bodies - create a top-level ontology for this data set’s data sharing.  Ensure that it is creative commons, owned by everyone to benefit everyone. 

Government - do your part and lead in collecting and publishing the government’s data - show the way.

Regulators - lobby to gain the power to strike off and fine Directors who are part of the creation of false data or are not fast enough to react

Media/ Journalism/  - check the data/ analysis/ insights and don’t promote your click model negative headlines over purpose, knowing that the regulators will have the power on the particular issue of data to remove you.  Be the body that brings about change and not the one the looks to score wins at society’s expense.

Researchers/ Consulting - Find ways to help and support the transformation, not by shaming or by creating best practice but by highlighting where we need to focus so we don’t leave anyone behind. Let’s not celebrate successes until we all find a sustainable place. We cannot run faster than our weakest partner. 

Individuals - we make change possible because somewhere in here, we have a role, and next is what we can all do.  Personally commit to enabling that the data, with rights and attestation, can be collected in everything done.  This will ensure I can make my choices based on data that has provenance and lineage. 

Together, with data, we can achieve the sustainable goals we want.