There is a lot of discussion about non-financial reporting standards that encompass information on ESG (Environmental, Social, and Governance) policies, risks, and outcomes.
Most people understand why environmental standards are important, while social and governance aspects often take a back seat. The primary reason for this is likely the immediate focus on environmental issues, which are perceived as pressing problems that need to be addressed and solved. Additionally, environmental issues are tangible and measurable. Furthermore, a vast number of experts have been addressing environmental concerns for decades, supported by a public narrative around social responsibility and sustainability. This has led management to perceive that there are specialists dedicated to ‘sustainable’ and ‘green’ topics.
This approach may have been sufficient until the implementation of legal obligations setting concrete, measurable goals, which has pushed sustainability to the top of CEOs’ priority lists. They now recognise that their active involvement is inevitable and crucial for achieving these goals. Since we do not yet live in an era dominated by machines, the realisation of these objectives requires the active participation of people. Without this, mobilising the critical mass necessary for the changes ahead is impossible. Working with people necessitates leadership, and in this specific context, inclusive leadership.
Although less talked about, the two background engines of ESG —social (S) and governance standards (G)—are essential for achieving set goals.
To implement all standards effectively, governance ensures that business objectives are achieved in a socially and environmentally acceptable manner.
The introductory documentation on governance reporting standards (G) highlights the importance of corporate culture, which is defined at the top and cascades through the organisation via purpose, values, and strategy. This provides employees with guidance on daily operations, sensitivity to certain issues, and acceptable interpersonal relationships, all aimed at achieving business goals and maintaining a desired reputation.
Corporate culture and its elements are sometimes described as the glue that holds an organisation together, meaning it is often invisible. To make it tangible and visible, the top-down tone is necessary, particularly in the ESG area, indicating the need for inclusive leadership, which is inherently based on inclusion and fair play. In practice, this means ensuring fair and equitable treatment and opportunities for everyone, regardless of background, education, gender, ethnicity, or other forms of diversity.
It also involves creating a sense of belonging within the group and a supportive environment where opinions can be freely expressed, whether they align with the majority or not. In such conditions, employees feel recognised, valued, and most importantly, safe, leading to higher engagement, motivation, and productivity. An important trait of inclusive leaders is self-awareness of their biases, which is the first step to recognising biases in others and in business processes, ensuring fair treatment of suppliers and preventing corruption.
Social standards (S) cover the impact on the organisation’s employees, extending to those in the supply chain, the broader business community, and customers.
They place significant emphasis on understanding the workforce and defining working conditions through policies and a range of indicators. While many large organisations have already implemented policies and tracked numerous required indicators, these data were often ends in themselves. The focus is now shifting to using data to objectively assess the actual state of employees, their characteristics, salaries, with insights into gender disparities and hierarchical proportionality to reduce inequalities, workplace safety, professional development, and work-life balance.
The purpose of a comprehensive view of employee data is to make more informed business decisions that consider individuals, the collective, and environmental demands. This requires a high level of self-awareness, adaptability, teamwork, and the ability to view problems from different perspectives, achievable with developed inclusive leadership capacities.
It is now clearer that achieving the full effects of governance and social impacts requires mobilising the entire organisation, not just sustainability experts. Companies have been operating and reporting on their practices from these perspectives, but not necessarily through the synergy of governance and social impacts now clearly linked by corporate culture under the direct responsibility of top management.
Top management plays a crucial role in setting clear business standards and ensuring their consistent implementation with the dedicated involvement of the entire organisation. To effectively mobilise the entire organisation in the desired direction, it is essential to adopt the qualities of inclusive leaders who are self-aware, committed, courageous, curious, cooperative, and culturally intelligent.
The good news is that, like any other skill, inclusive leadership can be learned. An additional motivation for personal investment in this direction is the legal ESG reporting regulation, which fundamentally makes business more inclusive.
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