“When the money moves, everyone moves.”
It’s a phrase I’ve heard several times over the last few months, as years of hard work addressing ESG issues in property begin to pay off.
The property industry’s laser-like focus on two ESG pillars – environment and governance – has translated into financial value and competitive advantage. Now the S is coming under increasing scrutiny.
This is an issue occupying the great mind of John Ruggie, a professor in human rights and international affairs at the Harvard Kennedy School, who landed on our shores recently to address the Global Compact Network Australia conference.
ESG investments now account for $44.5 trillion – or 25 per cent – of all assets under management worldwide.
And Ruggie argues that ESG investing is not only generating “favourable returns” and greater transparency but can also be a “transformative agent in our extraordinarily turbulent and fragile economic world”.
The author of the UN’s Guiding Principles for Business and Human Rights – otherwise known as the Ruggie Principles – argues that “the S in ESG” is currently the “weakest pillar”.
While E and G are more self-evident and easier to measure, social indicators – whether health and safety or employee relations, diversity or non-discrimination, Indigenous relations or responsible marketing – are a “scatter plot of scores generated by different data providers [that] resemble nothing so much as pigeon droppings in Venice’s St. Mark’s Square”.
This is puzzling, Ruggie argues, because all these issues, and many more, are about human rights. “Put simply, the S is about people.”
Milton Friedman’s argument that the only “social responsibility of business is to increase its profits” no longer holds water. As BlackRock’s Larry Fink said in his 2019 CEO letter: “Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being – what it does every day to create value for its stakeholders.”
And those stakeholders aren’t just investors, but employees, customers and the broader community too.
For a business to be sustainable, its purpose needs to reflect concern not only with financial capital, “but also its impact on human capital, social capital and natural capital,” Ruggie says.
However we define sustainable business – and the ASX Corporate Governance Council has recently debated whether social licence to operate, reputation, or community standing is the best term – what is most important is that central concern for people.
The Modern Slavery Act is a good example of how regulation can accelerate change. But the greatest impact occurs when businesses willingly shift the way they operate.
Leading with our members, the Green Building Council of Australia is sharpening our industry’s focus on social capital by helping to make sense of these “scatter plot of scores”.
Our Future Focus project, which is guiding the evolution of Green Star, will help organisations to scrutinise their supply chains, and to measure, report and act to reduce their impact on people, cities and the natural environment.
While there is no “single silver bullet” to fix all the world’s problems, Ruggie says one thing is certain. “One cannot fix any problem with the tools that created them.” So join us in creating the new tools we need to change the world.
Consultation on Future Focus: Green Star for New Buildings closes on 10 June.