“The best defence is a good offence.”

This well-worn mantra sits at the core of three decades of success for Mark Kramer in bringing the social in ESG to the forefront of thinking at some of the world’s biggest corporations, foundations, intergovernmental bodies and non-profits. 

The co-founder of Foundation Strategy Group (FSG), a leading social impact consulting firm, Kramer has worked to bring for-profit solutions to social problems and create business strategies with clients and partners for positive social impact.

While these days he takes more of a backseat on the day-to-day running of the firm, sitting on the board, he isn’t sitting still. He is a visiting lecturer at Harvard Business School, and sits on the board of various bodies, among numerous speaking gigs. And at the end of the month, he will be in Ireland to tell business leaders all about the ‘S’ in ESG. But what exactly does this mean?

Shaping how we do business

For the business world, tradition dictated that financial reporting was the only game in town. In recent years, however, three other metrics – the environmental, social, and governance pillars –  have come to the fore to capture the non-financial risks and opportunities in running a business.

And it makes total sense. Every company, in some way, shape, or form, has a material impact on these pillars. While the more nailed-on ‘E’ and ‘G’ in the acronym are pretty self-explanatory, the social leg of the stool is the sort that can mean almost anything to everyone, all at once. 

But at its core, Kramer told The Currency that it is pretty straightforward – it means pursuing financial success in a way that also yields societal benefits.

This can mean, for example, focusing the business on offering goods and services that address social challenges. But it also means things like making sure there are high labour standards in your supply chains or ensuring fair access to your products for underprivileged or underserved social groups.

Good social principles also need to be inward-facing, Kramer says, with social care embedded in how you treat your staff and mould your workforce with diversity at the heart of it. 

You have to practice what you preach, and in Kramer’s case, this involved a big steer to create a more diverse workforce at FSG that took some time to get right. This included a racial equity audit, work to further diversify company leadership, and firm-wide training on anti-racism.

“Our commitment to living and breathing the racial equity work for us changed a great deal of what we do both in who we hire and how we work. I would say that’s been a major aspect of our development as a firm,” Kramer says. 

“There’s a tremendous interdependence there, you can’t have a successful company and a failing society,” Kramer says. “And you can’t have a successful society without competitive successful businesses that generate wages and tax revenue and wealth, and so on.”

It is a simple logic with a lasting impact and many of today’s most successful companies – with some nudging from Kramer et al in his field – recognise that the social impact of their business is a vital factor in both competitive strategy and operational effectiveness. 

And what’s good for the goose, is good for the gander.

Healthy profits 

Take the South African life and health insurance company Discovery, for example, that Kramer likes to highlight in his lecturing at Harvard as a company that has flourished by putting the social good at the core of its business model.

Discovery offers a set of incentives to reward people for engaging in healthier behaviours. When you go to the supermarket, for example, “you swipe your membership card at the checkout and you get automatically reimbursed 25 per cent of whatever you spend on fresh fruit, vegetables, and other healthy foods,” Kramer says.  

When you join you get a free Apple Watch, but you have to set a weekly exercise goal. Hit it and you get certain incentives. As a result of such schemes, Kramer says, Discovery’s clients “get sick less often, recover more quickly, their life expectancy is about 10 years longer, and their annual medical costs are about 15 per cent less”. 

And, at the same time, this social-led model has made Discovery an incredibly successful and profitable health and life insurance business, not only in South Africa but globally. The company also licensed this model to Generali Group in Europe and John Hancock in the US. “They found that making their customers healthier has made them a more successful and more profitable business,” Kramer says. 

But getting all companies to fully embrace this mantra is easier said than done. 

Lose sight and lose your way

Kramer has written widely about how it is no easy feat to get the wider business world onside to this way of thinking. Conventional economic teachings ingrained the idea that environmental and social issues were somehow external to the realities of running a business. They were seen as things that didn’t impact it, and therefore, shouldn’t shape it. 

“Most companies have a transactional approach to their employees and their customers – you buy my product, I don’t care what you do with it. Goodbye. For an employee – you work 40 hours, here’s your cheque. Goodbye,” Kramer says. 

He couldn’t disagree more with this sentiment. “So many people think about business and society as a trade-off or an opposition, that a win for society is a cost for business, and that is really not true,” Kramer says. 

Instead, he says, when you lose track of the social dimension, you can end up in a crisis situation. One prominent example he points to is the reputational fallout for Volkswagen from the emissions testing scandal. 

Another is the harm caused to shareholders after investors balked when Valeant Pharmaceuticals International came under massive public, media, and political pressure in the mid-2010s in the US after hiking prices on some of its life-saving medications. 

There is also concern that, much like greenwashing in the environmental area, companies may use the social element purely as a tokenistic means to do the minimum to meet ESG investor market requirements.

Take an example that Sean used when he wrote about ESG investments back in 2021. He said: “I know of a London fund whose employees were issued with rented bicycles, to be parked where clients would see them. The fund’s commitment to ESG stopped at the bicycles.” 

This sort of veneer of social care can then lead to public and political backlash over score manipulation and subsequent slowdown in ESG investing, as Constantin laid out this month. 

Kramer agrees that ESG ratings are “unreliable”, with too much focus on a checklist-driven measure of success. “Obliviousness to corporate responsibility and the social impact of their actions”, Kramer says, can cause massive harm. This not only exposes the companies themselves to financial, strategic and operational risks but also their lenders and investors.

By contrast, companies that have “embraced the social purpose and are paying attention to the well-being of customers and employees” create a culture where bad things don’t happen to the same degree. “When you have a culture that embeds a social purpose, everybody in the company knows it and is constantly reinforced to commit to it.”

Once a business truly embraces the social dimension at its core and looks out for the well-being of employees and customers, then, Kramer says, it can really “become a more profitable company”.

Mark Kramer, former faculty member of Harvard Business School, and presently a Senior Fellow at Harvard Kennedy School of Government, co-founder of FSG – Reimagining Social Change is speaking at the Ibec S in ESG Summit, which is taking place on Thursday, 30 November. Ibec is gathering business leaders to discuss social sustainability and the future of corporate leadership, the leadership role business must play in social and political issues, and the stake for Ireland’s competitiveness and prosperity. A half-day, think-in event, delegates will examine these emergent issues through a series of keynote addresses, panel discussions, delegate roundtables, and peer-to-peer conversations. The Currency is the media partner for the conference. 

To register to attend click the link: https://www.ibec.ie/connect-and-learn/events/upcoming-events/2023/the-s-in-esg-summit/general-details