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Making the invisible, visible: Overcoming barriers to ESG performance with an ESG mindset

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  • Sheehan, Norman T.
  • Vaidyanathan, Ganesh
  • Fox, Kenneth A.
  • Klassen, Mark
Abstract
Improving corporate environmental, social, and governance (ESG) performance starts with recognizing that not every dollar of earnings is created equally, as some profit may be earned at the cost of damaging the environment or of harming stakeholder relationships. These costs are often invisible to corporate employees, as they are not recorded. To earn corporate profits that are environmentally and socially responsible, boards and CEOs must overcome two barriers: (1) the ESG issue-assessment barrier, which reflects an organization’s inability to fairly assess, prioritize, scope, and plan ESG initiatives that address the invisible environmental and social damage corporations cause, and (2) the shareholder-value barrier, which recognizes that corporate employees may resist implementing ESG initiatives owing to their entrenched belief that corporations must maximize shareholder returns. To overcome these two barriers, we propose an ESG mindset model that highlights the pitfalls relating to ESG issue assessment and to the common belief in maximizing shareholder value and then suggests tactics to overcome them. The benefits to corporations that successfully overcome the barriers and improve their corporate ESG performance are threefold: They (1) will be perceived as positively contributing to environmental and societal issues, and thereby (2) avoid accusations of greenwashing and (3) improve their standing with stakeholders.

Suggested Citation

  • Sheehan, Norman T. & Vaidyanathan, Ganesh & Fox, Kenneth A. & Klassen, Mark, 2023. "Making the invisible, visible: Overcoming barriers to ESG performance with an ESG mindset," Business Horizons, Elsevier, vol. 66(2), pages 265-276.
    • Handle: RePEc:eee:bushor:v:66:y:2023:i:2:p:265-276
    DOI: 10.1016/j.bushor.2022.07.003
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    References listed on IDEAS

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    2. Bai, Keke & Jing, Kun & Li, Tianyu, 2024. "Corporate ESG Performance and Stock Pledge Risk," Finance Research Letters, Elsevier, vol. 60(C).
    3. Cai, Cen & Tu, Yongqian & Li, Zhi, 2023. "Enterprise digital transformation and ESG performance," Finance Research Letters, Elsevier, vol. 58(PD).
    4. Kudryashov, Alexander, 2023. "ESG Transformation: A Roadmap for Russia’s Sustainable Development /– Tallinn : OPEN EUROPEAN ACADEMY OF PUBLIC SCIENCES OÜ, 2023," OSF Preprints 6j8ux, Center for Open Science.
    5. Yuan Feng & Changfei Nie, 2024. "Digital technology innovation and corporate environmental, social, and governance performance: Evidence from a sample of listed firms in China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3836-3854, September.
    6. Meike Nicole Schulte & Cody Morris Paris, 2024. "Working the system—An empirical analysis of the relationship between systems thinking, paradoxical cognition, and sustainability practices," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4154-4171, September.

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