The only way is ethics: why ESG starts with the CEO

While the aver­age boy in the ear­ly 1990s might have spent much of his teen­hood play­ing foot­ball, gui­tar or video games, the young Tom Kay was far more inter­est­ed in swim­ming, surf­ing and sail­ing in the chilly coastal waters of north Nor­folk. Giv­en that he passed most of his free time on or in the sea, it was no sur­prise to his fam­i­ly when he went on to study marine biol­o­gy at uni­ver­si­ty. 

“I was always aware of the val­ue of my con­nec­tion to the sea, what it brought to my life and the impor­tance of pro­tect­ing it,” says the founder and CEO of Fin­is­terre.

Kay start­ed the busi­ness, now based in the Cor­nish surf­ing resort of St Agnes, in 2003 pri­mar­i­ly to sell sus­tain­able out­door cloth­ing. But he also want­ed to inspire both con­sumers and the wider appar­el indus­try to care more about the marine envi­ron­ment – and con­sid­er how their actions might be harm­ing it. 

“I wasn’t a busi­ness­man,” he recalls. “It was more that I had a pas­sion and a belief.” It’s an ethos that, through Kay’s con­tin­u­ing lead­er­ship, informs Finisterre’s every move.

It’s easy to see how vision­ary entre­pre­neurs such as Kay, who lives and breathes his brand’s ideals, can build organ­i­sa­tion­al cul­tures based on their own strong ESG val­ues. Patagonia’s Yvon Chouinard, whose firm has become a byword for cor­po­rate sus­tain­abil­i­ty, is anoth­er exam­ple of an inspir­ing and influ­en­tial founder. 

But there are also CEOs who have joined long-estab­lished multi­na­tion­al plcs and intro­duced bold and far-reach­ing sus­tain­abil­i­ty agen­das, which have gone way beyond what the company’s ded­i­cat­ed ESG depart­ments had ever achieved. Paul Pol­man, who led con­sumer goods giant Unilever from 2009 to 2019, is a case in point.

“When the CEO is com­mit­ted, things hap­pen.” So says Boris Saraber, direc­tor of oper­a­tions at Earth­worm Foun­da­tion, a not-for-prof­it enter­prise that works with busi­ness­es to pro­tect ecosys­tems at risk from their sup­ply chains’ activ­i­ties. 

“It’s crit­i­cal to get CEOs acti­vat­ed, as they can cut through the pol­i­tics and red tape to dri­ve much more change,” he says, espe­cial­ly if they can be encour­aged to get out of the board­room and see with their own eyes what’s hap­pen­ing on the ground.

Dar­i­an Stibbe is exec­u­tive direc­tor at The Part­ner­ing Ini­tia­tive, an organ­i­sa­tion that facil­i­tates col­lab­o­ra­tion among busi­ness­es, gov­ern­ments, NGOs and the Unit­ed Nations. For him, the role of the CEO in embed­ding ESG in a com­pa­ny is cru­cial pri­mar­i­ly because it’s an organ­i­sa­tion­al devel­op­ment chal­lenge.

“Lead­er­ship is an essen­tial part of that, because you’re try­ing to trans­form an organ­i­sa­tion,” he says. “When there is iner­tia, espe­cial­ly at senior man­age­ment lev­el where peo­ple get used to a cer­tain way of work­ing, you need a suf­fi­cient dri­ving force to demon­strate to all stake­hold­ers that this has to hap­pen.”

Setting ESG from the top

Ensur­ing that the whole organ­i­sa­tion takes ESG seri­ous­ly requires a cul­tur­al shift, sup­port­ed by appro­pri­ate poli­cies and process­es, includ­ing how bud­gets are assigned, employ­ees are incen­tivised and out­comes are report­ed to share­hold­ers, Stibbe argues. The CEO, or a board-lev­el direc­tor at the very least, should take ulti­mate respon­si­bil­i­ty for a trans­for­ma­tion of that scale.

He adds that the down­side of hav­ing a charis­mat­ic CEO who may reg­u­lar­ly extol the virtues of ESG on the speak­er cir­cuit is that they may not achieve enough progress inter­nal­ly to give their rhetoric much cred­i­bil­i­ty. 

“If the com­pa­ny isn’t deliv­er­ing, that’s a prob­lem,” Stibbe says. “There is often lots of PR fluff in cor­po­rate annu­al reports. One way you can tell a gen­uine state­ment on ESG from one that’s less gen­uine is if it talks about chal­lenges and admits to errors.’”

It’s an approach that con­sumers appre­ci­ate too, notes Kay, who adds: “This is not about say­ing we’re per­fect or we have all the answers. It’s about hav­ing an open dia­logue with our com­mu­ni­ty, where we’re say­ing: ‘We’re going as hard and fast as we can in this direc­tion, but there will be dif­fi­cul­ties along the way.’”

There’s also a dan­ger that the CEO may deliv­er on their ESG objec­tives but at the expense of the bot­tom line, because bal­anc­ing pur­pose and prof­it can be incred­i­bly tricky. Pol­man was wide­ly revered dur­ing his decade-long tenure at Unilever because the firm remained prof­itable while he focused on improv­ing its ESG per­for­mance. But Emmanuel Faber, CEO and chair­man of Danone, was not so for­tu­nate. In March 2021, he was oust­ed by investors, many of whom blamed a decline in the firm’s share­hold­er val­ue on his pur­suit of an ESG agen­da, which includ­ed adopt­ing the bold met­ric of car­bon-adjust­ed earn­ings per share.

Hav­ing a CEO so inex­tri­ca­bly linked to a company’s eth­i­cal pur­pose rais­es the impor­tant ques­tion of what hap­pens when they leave, says Stibbe. 

“Have they shift­ed the organ­i­sa­tion suf­fi­cient­ly, so that it doesn’t sim­ply revert to what it was before? This is like any sys­temic trans­for­ma­tion: it needs to stick there for long enough, so that the changes get ful­ly embed­ded,” he says.

Kay thinks that his com­pa­ny would actu­al­ly go on to do bet­ter things with­out him. “The idea of Fin­is­terre is obvi­ous­ly far big­ger than me now,” he says. 

Kay also believes that the fact the firm has been a cer­ti­fied B Cor­po­ra­tion since 2018 has helped to cement his lega­cy by pro­vid­ing a sol­id and mea­sur­able frame­work from which to bal­ance prof­it and pur­pose.

Stibbe agrees that becom­ing a B Corp and chang­ing the company’s arti­cles of asso­ci­a­tion to include ESG val­ues is a pos­i­tive step that’s help­ful in build­ing momen­tum inter­nal­ly. He would also encour­age any com­pa­ny to grant more promi­nence and sta­tus to its ESG team. 

“I’ve heard peo­ple in sus­tain­abil­i­ty depart­ments talk­ing about how they’re seen as a sort of mini-NGO inside their com­pa­ny instead of an inte­gral part of it,” he says. “These teams should not be seen as lux­u­ry add-ons that advo­cate changes that oth­ers are resis­tant to. On the con­trary, their mem­bers should be seen as high-fly­ers – the inter­nal experts whom oth­ers con­sult, seek­ing the know-how to improve their work and meet their tar­gets.”