Mind the Gap - between short and long term strategy
Mind the Gap
An analogy. Our universe is governed by two fundamental models, small and big. The gap between Quantum Physics (small) and The Theory of Relativity (big) is similar to the issues between how we frame and deliver short and long-term business planning. We can model and master the small (short) and the big (long), but there is a chasm between them which means we fail to understand why the modelling and outcomes of one theory; don’t enlighten us about the other. The mismatch or gaps between our models create uncertainty and ambiguity, leading to general confusion and questionable incentives.
In physics, quantum mechanics is about understanding the small nuclear forces. However, based on our understanding of the interactions and balances between fundamental elements that express small nuclear forces, we cannot predict the movement of planets in the solar system. Vice versa, our model of gravity allows us to understand and predict motion in space and time, enabling us to model and know the exact position of Voyager 1 since 1977, which does not help in any way to understand fundamental particle interactions. There remains a gap between the two models, which is marketed as “The Theory of Everything” it is a hypothetical, singular, all-encompassing, coherent theoretical framework of physics that thoroughly explains and links together all physical aspects of the universe - it closes the gaps as we want it to all be explainable.
In business, we worked out that based on experience, probability, and confidence, using the past makes a reasonable predictive model in the short term (say the next three years), especially if the assumptions are based on a stable system (maintaining one sigma variance). If a change occurs, we will see it as a delta between the plan and reality as the future does not play out as the short-term model predicted.
We have improved our capabilities in predicting the future by developing frameworks, scenario planning and game theory. We can reduce risks and model scenarios by understanding the current context. The higher level of detail and understanding we have about the present, the better we are able to model the next short period of time. However, whilst we have learnt that our short-term models can be representative and provide a sound basis, there is always a delta to understand and manage. No matter how big and complex our model is, it doesn't fare well in with a longer time horizon as short-term models are not helpful for long-term strategic planning.
Long-term planning is not based on a model but instead on a narrative about how the active players' agency, influence and power will change. We are better able to think about global power shifts in the next 50 to 100 years than we can perceive what anything will look like in 10 years. We bounded by Gates Law “Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years.”
For every view of the long-term future, there is a supporting opinion. There is an alternative view of the future for every opinion, and neither follows the short-term model trajectory.
There is a gap between the two models; (small and big)/ (short and long). The gap is a fog-covered chasm that we have so far failed to address how to cross using models, theories or concepts from either the short- or long-term position. In this gap, where the fog-filled chasm exists, this zone demands critical thinking, judgement and leadership. The most critical aspects of modern humanity's ability to thrive sit in this zone: climate, eco-systems, geopolitics, global supply chains, digital identity, privacy, poverty, energy and water.
ESG has become the latest victim stuck in the foggy chasm.
ESG will be lost if we couldn’t agree now to position it as both a short-term model and a long-term value framework. ESG has to have an equal foot in each camp and requires a simple linear narrative which connects the two, avoiding getting lost in the foggy chasm that sucks the life out of progress that sites between them.
ESG as a short-term model must have data with a level of accuracy for reporting transparently. However, no matter how good this data is or the reporting frameworks, it will not predict or build a sustainable future.
ESG demands a long-term framework for a sustainable future, but we need globally agreed policies, perhaps starting from many UN SDG ideals. How can we realistically create standards, policies and regulations when we cannot agree on what we want the future to look like because of our geographical biases. We know that a long-term vision does not easily translate into practical short-term actions and will not help deliver immediate impact, but without a purpose, north star and governance, we are likely to get more of the same.
If the entire ESG eco-system had only focussed on one (short or long), it would have alienated the other, but right now, I fear that ESG has ended up being unable to talk about or deliver either. The media has firmly put ESG in the foggy gap because it is the best for its advertising-driven model. As a community, we appear unable to use our language or models to show how to criss-cross the chasm. Indeed our best ideas and technologies are being used to create division and separation. For example, climate technologies such as “carbon capture and storage models” had long-term thinking in the justification. Still, it has become a short-term profit centre and tax escape for the oil and gas extraction industries. "The Great Carbon Capture Scam" by Greenpeace does a deep dive on the topic.
As humans, we desperately need ESG to deliver a long-term sustainable future, but this is easy to ignore as anyone and everyone can have an opinion. Suppose ESG becomes only a short-term deliverable, and reporting tool, it is likely to fail as the data quality is poor and there is a lack of transparency. Whilst the level of narrative interruption is one that marketing demands, we will likely destroy our habitat before we acknowledge it and end up in the next global threat.
Repeating the opening question. “Is ESG a model, a science, a framework, or a reporting tool?” On reflection, it is a fair question as ESG has to be all. However, we appear to lack the ability to provide clarity on each element or a holistic vision for unity. Just in ESG science alone, there is the science that can be used to defend any climate point of view you want. Therefore, maybe, a better question is, “Does ESG have a Social Identity Crisis?” If so, what can we do to solve it?
there is no transparency about why a party supports a specific outcome, deliverable, standard or position;
the intrinsic value of ESG is unique by context and even to the level of a distinct part of an organisation;
we cannot agree if ESG investors are legit;
we cannot agree on standards or timeframes;
practitioners do not declare how or by whom they are paid or incentivised;
And bottom line, we have not agreed on what we are optimising for!
Whilst we know that we cannot please everyone all of the time, how would you approach this thorny debate as a thought leader?