Don't ESG and P/L Aim to Achieve the Same?

In the early days of Asian Trucker, we interviewed a tyre maker. Their managing director admitted that there has to be an impact on the environment in producing and using tyres. Has to be. The issue for them was to reduce that impact though. Meanwhile, ask anyone running a truck fleet and they will tell you that they are always looking for ways to reduce cost. In other words, suppliers and users are aiming to be sustainable. A definition of ESG I found on the internet reads: “Environmental, social and governance (ESG) is a framework used to assess an organization's business practices and performance on various sustainability and ethical issues.”

Especially third parties, read transporters, would have to have an ESG statement. Remember Y2K Compliance? Or ISO 9000? We are now entering an era where the ESG approach will be a determining factor for clients to choose their transporters. I might be a bit critically here as an ESG approach should be the very fundamental of a business. Rarely do I see a hotel advertise that they have beds. That’s what they do, offer a place to sleep.

Why do I think that the ESG and P/L are the same? I assume that any businessperson would try to maximise profit. If you reduce cost, you maximise profit. Hence, if you are looking for ways to reduce the environmental impact, you are, by default, aiming to increase profit. Should a business be wasting money by applying practices that don’t utilise assets in the best possible way, the business will be wasteful and no longer be sustainable. The two best examples in the transport industry are probably tyres and fuel consumption. Admittedly, a new truck would likely set back the owner by a good amount of money, but any new engine would always be more fuel efficient, hence the asset is more sustainable. A tyre that lasts longer, i.e. can sustain longer, will result in lower total operating cost (TOC).

Ethics in business are a big topic. When we mention ethical behaviour, likely most people might think of corruption. It is one of many facets of ethical behaviour. Any kind of unethical behaviour is likely to only produce short term gains. In the long run, a company that is not behaving ethically will suffer and become unsustainable. One may, as an example, underpay drivers and ask them to drive more hours then legally allowed. Naturally, these drivers may eventually leave and tell others about how they have been treated. Eventually, the company will not be able to attract good drivers or any drivers at all, thus becoming unsustainable despite them trying to squeeze as much out of their drivers as possible. In blunt terms, crime also don’t pay in the long run. Right now, I am sure, there are business owners weighing the option to cut corners, move a little into a dark-grey area. However, I am sure that most would do the right thing, as they are looking at the implications of their actions in terms of the P/L sheet. A business owner going to jail typically puts a quick stop to a business being able to sustain itself.

Shakespeare asked, “What's in a name?” in Romeo and Juliet, referring to the idea that names themselves are a convention to distinguish things or people, but themselves do not have any worth or meaning. When it comes to the business practices aspect of ESG, I think we have seen this before under the name of Kaizen, the Japanese business philosophy concerning processes that continuously improve operations by involving all employees. Kaizen too, therefore, would be aiming to ensure sustainability. I argue much of such continuous improvement comes naturally. Today, we don’t use Telex anymore. The ability to communicate (swiftly) is linked to the ability to generate income. Ergo, Kaizen would have the same purpose as one looking at improving the P/L sheet.

In academia, one talks about “lenses”, the idea of looking at a subject from a certain perspective. Essentially, ESG could be just that: looking at the P/L sheet with a new filter, a different lens. What we know already is that the ESG approach will become a deciding factor for businesses to continue attracting clients that have an emphasis on these matters. Those failing to re-phrase their efforts will be left behind.