ESG must enable change to be driven by people, through grassroots movements and the democratization of the approach to sustainable change

John

<p><em>This article is part two of a two-part series on sustainability policy. You can find part one <a href="https://illuminem.com/illuminemvoices/esg-sustainability-technocracy-and-just-transition-part-1" target="_blank" rel="noopener">here</a>.</em></p>
<p><span style="font-weight: 400;">In the first part of this series, we drew on the case of the political backlash of Dutch farmers to illustrate some of the challenges which can arise from overly relying on top-down targets and data-driven solutions in sustainability policy and the corporate sphere. </span></p>
<p><span style="font-weight: 400;">In this part, we want to propose some remedies to ensure that the sustainable transition (both in government policy and business) takes place in a consultative and participatory way, lessening the risk of democratic backlash.</span></p>
<h2><strong>Solution - democratising sustainable change</strong></h2>
<p><span style="font-weight: 400;">Climate change remains one of the greatest challenges of our age. But if change is not handled in the right way, there is a risk of backlash which fundamentally undermines the goals of the sustainable transition. Just transition, sustainability policy and ESG must take lessons from the Dutch farmers' case. Sustainable change in both government and corporate spheres must be consultative, participatory and mixed with bottom-up interventions, alongside top-down measures. It must engage individuals who are most impacted, respecting traditional and regional demographics, values and ways of working, understanding the on-the-ground realities for businesses of sustainable transition and democratising the approach to sustainable change.</span></p>
<p><span style="font-weight: 400;">In policy-making this can be achieved through:</span></p>
<ol>
<li style="font-weight: 400;" aria-level="1"><strong>Grassroots movements</strong><span style="font-weight: 400;"> - encouraging the use of consultative and participatory mechanisms such as citizen&rsquo;s assemblies which bring in the views of those who are most impacted by sustainable change and government policy. This will ensure that government targets are properly communicated to impacted stakeholders and that these stakeholders have the opportunity to shape targets and policies in a way that minimises the likelihood of disbenefit and resulting democratic backlash.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Promoting regional decision-making and solution-building</strong><span style="font-weight: 400;"> - translating top-down, centralised targets to bottom-up regional outcomes. To be sure, there is a range of regional climate strategies in existence in the UK, but these remain in the power of government departments and local councils, and more can be done (aligning with the grassroots movements point above) to include representatives from impacted groups in the shaping of regional policy and how this is implemented. One of the key lessons from the Dutch farmers' case is that farmers know best about how to use the land in a sustainable and future-oriented way. The same holds for other professions and industries.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Platforming</strong><span style="font-weight: 400;"> - understanding that a key element of &lsquo;just transition&rsquo; involves giving a platform to those most impacted. This may be individuals in emerging economies who are most impacted by climate change, or regional farmers and workers who stand to lose most from rapid change from policy making (and who do not necessarily stand to benefit from the influx of &lsquo;Green&rsquo; or &lsquo;Sustainable&rsquo; jobs which are commonly promised by governments).</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Education</strong><span style="font-weight: 400;"> - understanding the reality of climate risk and communicating this to impacted stakeholders in a way that is bespoke to their reality. How will climate change impact modern farming and industry? What medium and long-term risks does this pose to the individual farmer or worker such that a change in approach is needed? Why should they get behind a government policy or Net Zero target? This tailored messaging is essential to climate advocacy, and without it, it is often not clear why the stakes are sufficiently high to justify radical change to people&rsquo;s lives and livelihoods.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Taxes and incentives</strong><span style="font-weight: 400;"> - the Dutch farmers' case shows the problem of using the stick too much in policymaking, without giving a picture of the benefits to those who are most affected. It simply does not work to tell people they need to fundamentally change the way they do their job, with a significant risk of personal and financial loss, without putting in place options and incentives to make other ways of doing things like farming appealing. The carrot must be used to counter-balance the stick to ensure that people do not feel like change is being unreasonably forced upon them.</span></li>
</ol>
<p><span style="font-weight: 400;">In corporate circles, this can be achieved through:</span></p>
<ol>
<li style="font-weight: 400;" aria-level="1"><strong>Moving away from an overemphasis on data and targets</strong><span style="font-weight: 400;"> - moving away from narrowly focusing on external data and ratings towards more internal business-led thinking about building biodiversity, carbon reduction and social impact. At present, too much of ESG is based around meeting external targets which are themselves not subject to accountability and scrutiny in terms of how effective they are in aiding sustainable change. Businesses should be encouraged to build their own goals which fit within the realities of their sector and their business operations, and which utilise their own expertise in running successful enterprises. Funding and investment can then be leveraged based on these business-led criteria, rather than being aligned to the abstract criteria set by NGOs, supranational organisations, banks and/or large financial institutions.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Moving ESG towards ethics and impact driven by incentivising businesses in the right way</strong><span style="font-weight: 400;"> - at present ESG is about risk management and filling the requirements of ESG ratings or corporate reporting in a way that requires ticking boxes. This is not the same as driving companies to be more ethical or sustainable. To achieve the latter, we need to incentivise businesses to make the right kinds of changes and trust that businesses themselves can achieve this best (rather than conforming to a top-down standard setting). ESG is young and must be given time. But if it remains a movement in the hands of financial institutions, there is a risk we spend a lot of time thinking about data, targets and reporting, without scrutinizing whether these are actually the best way to achieve sustainable transition.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Being honest about tradeoffs</strong><span style="font-weight: 400;"> - in its advent, ESG promised the world but has yet to achieve what it has set out to. Whilst we shout about the need to achieve headline-grabbing strategic objectives like Net Zero, we aren&rsquo;t clear about what a Net Zero world might look like. For example, in the pursuit of Net Zero real estate, it is possible to simultaneously create unaesthetic cityscapes, buildings with a short shelf life and justify bulldozing (and thus wasting the resources used in) other elements of the built environment. There are important values at stake if we transition in a way that is not sensitive to navigating tradeoffs in the right way. We must be honest about the complexities of sustainable transition and recognise that difficult decisions must be made, and important values must be weighed against each other.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Holding investors and insurers accountable for proper engagement</strong><span style="font-weight: 400;"> - institutional investors and insurers often measure ESG success in their investees and policyholders by their ability to engage firms in gathering full datasets for reporting and disclosure. In the case of considering real-world environmental impact, firms may seek to enforce and encourage standards that move beyond data. For example, by engaging with agribusiness companies on land stewardship and regenerative agriculture.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Identify opportunities for innovation </strong><span style="font-weight: 400;">- lots of time and resources are poured into increasing the number of bureaucratic roles to deal with increasing reporting and disclosure regulations. Whilst firms cannot avoid such regulatory requirements, they ought to take the time to identify investment opportunities for innovation. Firms can do this by asking what will provide the biggest payoff financially whilst also making the biggest impact on mitigating/abating ecological crises.</span></li>
</ol>
<h2><strong>Conclusion</strong></h2>
<p><span style="font-weight: 400;">The Dutch farmers' case is important because it forces us to pause for thought when it comes to how we effectively achieve a sustainable transition. The case is instructive because it shows some of the problems that can arise if the transition moves too rapidly, and if it fails to engage with impacted parties in a consultative and participatory way. In the words of one </span><a href="https://www.bbc.co.uk/news/world-europe-62335287"><span style="font-weight: 400;">farmer:</span></a><span style="font-weight: 400;">&nbsp;</span></p>
<blockquote>
<p><span style="font-weight: 400;">&ldquo;If we have to adapt to new situations, I want to, but we have to be fair, it takes time - give me a chance."</span></p>
</blockquote>
<p><span style="font-weight: 400;">The implications for how we understand just transition are clear - top-down targets and policy-making must be mixed with on-the-ground advocacy, democratic participation, affording a voice to those most impacted by transition and presenting them with viable alternatives when it comes to making significant alterations to the way in which people have lived and worked for centuries.</span></p>
<p><span style="font-weight: 400;">In the ESG regulatory sphere, we must critically engage with the current mode of operating which involves data gathering and top-down target setting from regulators, supranational organisations, national governments, industry bodies, NGOs and financial institutions. We must appreciate the on-the-ground reality of what it takes for a business to change its operations to become more sustainable, less damaging to the environment and better stewards of the earth by being protective of and additive to biodiversity. We ought to consider how to incentivise business change in the right way - to ensure that the power lies with businesses not just to meet external targets or reporting requirements but to transform their operations to drive more sustainable and ethical business. Put simply, ESG must enable change to be driven by people, and not faceless targets and requirements.</span></p>
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<p><em>illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.</em></p>
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ESG, sustainability, technocracy and just transition (II/II)

The case for a more democratic, bottom-up approach to sustainability policy

<p><em>This article is part one of a two-part series on sustainability policy. You can find part two <a href="https://illuminem.com/illuminemvoices/esg-sustainability-technocracy-and-just-transition-iiii" target="_blank" rel="noopener">here</a>.</em></p>
<h2><strong>Introduction</strong></h2>
<p><span style="font-weight: 400;">In March this year, farmers in the Netherlands won a shock provincial election victory protesting against significant changes to national climate policy. The policy required farmers to slash carbon and nitrogen emissions by 50% by 2030 and to cull 30% of livestock to achieve this. If the farmers failed to achieve these targets then the result would be mandatory buyouts, the closure of farms, loss of ownership and an inability to farm elsewhere in the European Union. From the perspective of the Dutch farmers, these policies put their long-term security and livelihoods at risk. Moreover, economic critics of the policy claimed that it risked causing supply chain shocks and price rises when businesses from across the globe suddenly received far less from the world&rsquo;s second-biggest agricultural exporter. Yet the environmental case for the policy was held to justify these risks. The protests, which started as a grassroots movement, quickly evolved into a political party, which in only a few years, won in provincial elections.</span></p>
<p><span style="font-weight: 400;">The case is important because it illustrates some of the limits of an approach to sustainability policy-making that is focused almost entirely on top-down solutions which are state-led, target driven and which fail to properly engage with those who are being told to change. The Dutch farmer case represents a grassroots democratic backlash against sustainability programmes that institute change too rapidly and in a way that is disruptive to livelihoods, even though it is aimed at achieving important goals. There are important lessons for temperance in policy making, and ensuring that the sustainable transition respects regional demographics, traditions, grassroots advocacy and the importance of participatory democracy. In this two-part series, we want to draw out some lessons from the Dutch case, and make the case for a more democratic, bottom-up approach to sustainability policy.</span></p>
<h2><strong>Just transition and the limits of top-down sustainability policy-making</strong></h2>
<p><span style="font-weight: 400;">In corporate and policy circles, there is a lot of talk about a &lsquo;just transition&rsquo;. A just transition is one that achieves the transition to a low-carbon, Net Zero economy in a way that factors in other valuable goals, such as the rights and interests of various parties who are impacted by the large-scale environmental change that lies ahead. That is, a just transition is one that achieves sustainable change while at the same time respecting values such as democracy, respect for individual rights, lives and livelihoods, affording a platform to those most impacted and aiming to achieve a certain level of economic stability in the process.</span></p>
<p><span style="font-weight: 400;">The Dutch farmer's case carries important lessons for how we understand just transition because it illustrates the importance of participatory democracy as a core element of what &lsquo;justice&rsquo; means in the context of &lsquo;Just Transition&rsquo;. Individuals whose livelihoods are to be fundamentally uprooted and altered forever must be consulted, given a voice, bargained with and provided feasible alternatives if sustainable change is to avoid the sort of political backlash that the Dutch farmers case shows can take place.</span></p>
<p><span style="font-weight: 400;">The case also points to a more fundamental value conflict between democracy (understood here as &lsquo;the will of the people&rsquo;, or at least a large subset of the people) and an approach to top-down policy making that is target-driven, top-down and which fails to be consultative of the wider populace (sometimes captured under the concept of &lsquo;Technocracy&rsquo;). &lsquo;Technocracy&rsquo; is an approach to governance that is based on policymaking by experts and government officials who are often distanced from the work and the reality of those who are most impacted by this policy making. At root, this form of governance is premised on faith that society is best governed through achieving the ends of science and technology, and thus through logical and rational procedures to approach and gain control over something external, such as the environment, biodiversity or climate change. Technocratic solutions are commonly achieved through means such as policy targets, central planning, the gathering of data and the development and imposition of global or national standards and metrics.</span></p>
<p><span style="font-weight: 400;">Too much technocratic policymaking causes at least four challenges, many of which we are seeing in the approach to sustainability policy at national and supranational level across the globe at present:</span></p>
<ol>
<li style="font-weight: 400;" aria-level="1"><strong>Powerful</strong><span style="font-weight: 400;"> </span><strong>minority</strong><span style="font-weight: 400;"> - It tends to place power in the hands of a narrow cohort of people, such as policy-makers, finance heads, experts or government departments, whilst not placing enough emphasis on the voices of individual citizens and interested stakeholders who are most impacted by policy making. Often the only consultations with the public are through legally required &lsquo;public consultations&rsquo; which often arrive late in the day and only afford a brief forum for discussion.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Limited role for grassroots</strong><span style="font-weight: 400;"> - There is little room for local solutions or local responsibility to local problems, only adherence to policy and standards set from a distant political centre. Being quite literally closer to the land than urban bureaucrats, the Dutch farmers understood what was required to make the land productive, sustainable and in harmony with the landscape. Their world, and worldview, is quite different from the world of corporate offices or government buildings, it is more entwined with nature and the local community and less focused on designing rational, logical solutions to bring an object of focus under control.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong>Centralised policy making - </strong><span style="font-weight: 400;">Policy, standards, metrics and targets are often too blunt an instrument because they cannot take into account the particularities that exist within a geography, its landscape, people demographics and its culture(s) and tradition(s). The problem with top-down policy is it attempts to drive change for diverse stakeholders, with diverse priorities and interests, in a way that is monolithic, unidirectional and fails to account for regional differences and nuances.</span></li>
<li style="font-weight: 400;" aria-level="1"><strong style="font-family: Inter, -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Helvetica, Arial, sans-serif, 'Apple Color Emoji', 'Segoe UI Emoji', 'Segoe UI Symbol', serif;">Homogeneity - </strong><span style="font-weight: 400;">Technocratic governance imposes concepts and accepted language upon those expected to adhere, shaping our perception of and relation to the world. The term &lsquo;natural capital&rsquo;, for example, approaches the non-human world as inert matter to be used in the human economy, whilst setting global standards for its management of such capital gives bureaucrats, a small proportion of humanity, a disproportionate amount of influence and power.</span></li>
</ol>
<p><span style="font-weight: 400;">Technocracy has been a defining feature of sustainability policy over the last few years and as an approach to policy and economic-decision making it has limits. There is historic precedent that shows that forceful, top-down approaches to big economic change are unpopular, leading to backlash and leaving individuals and communities floundering in the wake of rapid changes to their ways of life and livelihoods. Two, cruelly ironic, examples in British history illustrate this point. Firstly, the Enclosure Acts began in the 1600s, which benefitted individual farmers and soon-to-be landowners but forced many unable to afford new higher rents to move to large towns and cities to work in mills and plants under initially excruciatingly poor conditions. Second, the deindustrialisation strategy of the UK&rsquo;s Conservative government in the 1980s. Lives, cultures and the health of communities changed rapidly, people were told they cannot make a living in mining or industry in a way that they had for years. Job and livelihood security was removed with the workers told to reskill and find jobs that are new and unfamiliar. It is precisely consequences similar to these that the Dutch farmers were fighting to avoid.</span></p>
<h2><strong>Technocracy in the corporate sphere - the limits of ESG</strong></h2>
<p><span style="font-weight: 400;">Technocracy has been common in the corporate and financial spheres as well, with the archetype of the technocratic approach to sustainable change being &lsquo;ESG&rsquo;. In its advent, ESG promised the world - sustainable business change that would create impact whilst not compromising financial returns. But as the dust settles and the hype dies down, many are realising that merely setting targets and measuring companies against vague and ill-defined &lsquo;environmental, social and governance goals is not the most effective way of directing business towards more sustainable and ethical practices. Indeed, one of the reasons that ESG has failed to achieve the great heights that it set itself is that that to date it has been driven by finance and banking professionals, funds and large institutional investors, who are distanced from the operational reality of what it takes to effectively decarbonise an individual business (or make it more circular, or better protect biodiversity, or mitigate and repair ecological harm).</span></p>
<p><span style="font-weight: 400;">The drawbacks of an overly top-down approach to ESG and sustainability in the business sphere can be seen in two key features of the contemporary ESG movement - a) ESG ratings and b) an obsession with gathering data.</span></p>
<ul>
<li aria-level="1"><strong>ESG ratings -</strong><span style="font-weight: 400;"> as set out by providers such as MSCI, S&amp;P and Sustainalytics seek to capture data on companies and rate them based on how effective they are at meeting a series of &lsquo;environmental, social and governance goals&rsquo;. These goals are set by large financial institutions and are often based on tick box criteria (Is there an environmental policy? Does the company measure Scope 1 &amp; 2 emissions? Do they gather data on human rights?) Importantly, when you dig a little deeper it becomes clear that these top-down criteria are too often detached from measuring tangible impact, and these ratings do not line up well with achieving more ethical, sustainable or planet-friendly business at all.</span></li>
</ul>
<p><span style="font-weight: 400;">To illustrate the point take the recent case of an Italian chemical company that was awarded the highest ranking of &lsquo;AAA&rsquo; by the ESG ratings agency MSCI for its environmental credentials, despite dumping large amounts of lime ash on a Tuscan beach. This caused a wide range of environmental changes and was later found to be causing acute ecological damage and health problems to the local population through the illegal dumping of mercury (Bloomberg, 2020). While the company was rated highly in ESG terms, the approach to ratings meant that real, adverse impacts from the business were able to slip through the net of the ratings system. Current ESG rating methodologies still enable firms like these to be included in a sustainable investment portfolio.&nbsp;</span></p>
<ul>
<li aria-level="1"><strong>Over-emphasis on ESG data -</strong><strong> </strong><span style="font-weight: 400;">the second issue with the emphasis on top-down technocratic ESG targets is an over-obsession with data. By collecting more data on carbon, biodiversity, human rights, social impact, diversity and so on (the argument goes) we will get better at protecting these things - &lsquo;what is measured gets managed&rsquo;, as the saying goes. Yet data is not a panacea and is in many ways more of a distraction. You can parse any element of our world into a thousand constituent parts and yet still not see how it links to the whole nor whether aiming at reducing or increasing a quotient of a metric will result in a better world, one more ecologically sound and respectful of local particularities. What matters is not getting more data, but getting better at decision making, being honest about the challenges of sustainable change and being bold when it comes to the deep systemic changes in business that are required.</span></li>
</ul>
<p><span style="font-weight: 400;">In ways that are reminiscent of the plight of the Dutch farmers, we are asking for too many of the resources available to companies in the real economy to respond to top down ESG guidelines, placing them under severe pressure in difficult economic times, whilst simultaneously asking investors and corporates to expand bureaucratic roles that are myopically focused on data gathering and narrative creation for public reporting and disclosures. Now the regulatory horse has bolted it won&rsquo;t go back to its pen and will likely run much further and faster in proliferating reporting requirements. But reporting is not the same as tangible change. Indeed, the emerging academic literature shows that the evidence that increased ESG reporting leads to more sustainable and ethical business is </span><a href="https://journals.sagepub.com/doi/full/10.1177/10860266231151653"><span style="font-weight: 400;">inconclusive, or &lsquo;complicated&rsquo; at best.</span></a></p>
<p><span style="font-weight: 400;">What, then, could an augmented approach look like to more effectively secure a sustainable change in a way that minimises democratic backlash or an overreliance on data collection? We explore this further in our second article.</span></p>
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<p><em>illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.</em></p>
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Tom Hancocks

Tom Hancocks

ESG, sustainability, technocracy and just transition (II/II)

ESG, sustainability, technocracy and just transition (I/II)

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