ESG is an emerging force driving corporate activities in the region. Big players like Deloitte and others are establishing international development practices. Meanwhile, critical law reform around slavery in supply chains, environmental safeguards, and Magnitsky-style legislation is on the rise.
With a host of new organisations undertaking activities to achieve development impact, we’re left wondering what impact this will truly have. Will this be a game-changer, or something far less impactful? We put it to the experts.
The rise in responsible business practice, focusing on the environmental social and governance issues (ESG), has been tectonic, and has the capacity to bridge the gap between positive economic growth and development on the one hand, and exploitation and suffering experienced by the world’s most vulnerable workers on the other. To illustrate this gap – while 800 million people have been brought out of poverty in China alone, $150 billion USD in annual profits are being generated by people experiencing forced labour.
Of late, regulators, investors, shareholders and activists are rightly focussed on organisations that are not meeting sustainability expectations, and creating immense pressure to improve. A range of metrics and taxonomies are being developed, but there is still inconsistency and incoherence making it difficult to assess progress, and for consumers to make informed decisions. Despite this, ESG is a market differentiator – it encourages ethical business behaviour and creates long-term value.
But it also throws up difficult dilemmas.
Take for example, the challenge of Australia’s transition to a green economy. Many of the necessary components in solar panels are sourced from Xinjiang, a region the US has identified as having a presumptive risk of forced labour. The installation of solar solutions, therefore, while addressing organisations’ carbon footprint, immediately elevates the risk of modern slavery in the supply chain. ESG is complex, and risks are integrated, and businesses wanting to demonstrate responsible behaviour must be managing these wicked challenges well.
As corporates scale up their ESG activity, we may well see positive development outcomes coupled with things like ethical supply chain practices – but there’s no doubt about the complexities to overcome along the way.
Phoebe has over 25 years experience in the humanitarian sector, specialising in armed conflict and emergency response. She was a founding Director of the Humanitarian Adivisory Group and is now the Head of Responsible Business and ESG at Corrs Chambers Westgarth, advising clients on the human rights impact of their operations. At the Lab, we value Phoebe’s deep expertise across a range of areas, and her ability to carry this into new spaces and conversations.
Let’s face it, private sector-led development hasn’t always delivered the results we imagined in the last decade. But when it comes to the emerging governance force of ESG, there is potential for corporates to not just catalyse development results, but also to disrupt how we conceive of both corporate agency, and aid and development. Whether that potential is realised will come down to two key choices: ambition, and a willingness to learn from an established development sector.
First up – corporates need to define their ambition. Organisations have to pick a lane when it comes to their ESG commitments. Is ESG the glossy page of an annual report – full of pretty pictures, quick wins and low hanging fruit? Or, could innovative companies adopt a maximalist approach – disrupting the way we conceive of both traditional corporate agency and development in one foul swoop?
If the latter – then let’s talk. Companies have plenty to learn from the craft of decades’ old ESG work known by a different name: aid and development.
Development organisations are skilled at:
1. Maintaining in-country licences to operate.
2. Building inclusive, diverse, and representative governance models, articulating complex value propositions, and controlling and directing how development outcomes can be achieved across multi-jurisdictional settings.
3. Staying focused – often for decades – on the intractable, challenging and wicked task of effectively engaging diverse stakeholders on this development journey.
The sky is the limit for potential corporate impact – but an appetite for learning is crucial. All that remains is linking up the corporate and international development sectors to determine the art of the possible.
Pete is a crucial sounding-board for The Lab with a background in risk, strategy, organisational change and governance. Having spent the last 12 years at Ernst & Young, Pete’s knack for big-picture thinking and creating unusual collaborations makes him a valued advisor, and at The Lab, we love Pete’s ability to cut through the noise and always ask the hard questions.
The word ‘corporates’ can mean so much. Corporate interest in development can mean more contractors vying for development dollars, or more private finance entering the sector. Both have upsides and downsides – but neither guarantees better development outcomes for our region, as neither guarantee the centrality of local knowledge and experiences in decision-making processes.
With more corporates entering the market and bidding for work, everyone must sharpen what they’re bringing to the table. The need for strategic and unconventional collaborations intensifies. It could be a traditional contractor, a local think-tank and a tourism company working in consortium. Or an art gallery partnering with a university. It sounds like the beginning of a quirky fairy tale, but in reality, more actors playing in the space means everyone has to know what they’re uniquely bringing their table and act strategically.
With more private finance entering the sector, we’ll see a balancing of commercial gain alongside the environmental and social gain. Thinking commercially forces us to entrench considerations of sustainability and viability in our work, but a solely commercial lens would make many development investments completely unviable – which is where public finance remains essential. Further, this is where marrying the public and private, and the commercial and altruistic, can garner better results.
To the earlier point though – corporates scaling up development does not guarantee better outcomes. Only understanding the true mechanisms and vehicles for social change can do this. And this is motivated local individuals creating social change – and external entities supporting rather than deciding this. To repeat a quote from the always-excellent Anna Gibert: “no significant and sustainable process of social changed ever happened through ‘professionals’ managing ‘development projects’.”
The worst impact that corporates could have on the development of our region, is bringing more externally devised projectisation rather than true partnership and skills sharing.
Rachel is a social development specialist and strategic adviser at Equity Economics. Previously at the World Bank and EY, she has extensive experience in the development sector and is also the founder of one of Australia’s most successful not-for-profit podcasts, Good Will Hunters, tackling the big questions in aid. Rachel is a dear and long-time friend of the Lab, we enjoy her wealth of knowledge on strategy development, program design and implementation, and institutional strengthening.