The need for 'steward leadership'

With cos increasingly resorting to greenwashing, fraud, and window dressing to meet their ESG imperatives, Rajeev Peshawaria's book presents a new paradigm in leadership to overcome this challenge

Sustainable Sustainability: Why ESG is Not Enough

Author: Rajeev Peshawaria

Publisher: Penguin

Pages: 322

Price: Rs 599

Gone are the days when businesses could focus entirely on maximising profits without caring about their social responsibility and environmental impact. They cannot afford to be so blasé any longer because clients and consumers expect them to do better. If they refuse to get their act together, they risk being called out on social media, losing goodwill and incurring losses.

“Urgent calls for action on climate change, socioeconomic inequality and cyber vulnerability have spawned a new sector for the asset management industry, with the emergence of Environmental, Social and Governance (ESG) funds,” writes Rajeev Peshawaria in his book Sustainable Sustainability: Why ESG is Not Enough. He is the chief executive officer of Stewardship Asia Centre in Singapore and founder-president of Leadership Energy Consulting in Seattle.

His main argument in this book is that ESG has failed to address the challenges that it had set out to overcome because it tends to be obsessed with incentives and regulations. He shows how incentives that are based on formulaic measurements lead to various kinds of bad behaviour including greenwashing, fraud and window dressing. Regulations can ensure compliance and reduce harm but rarely promote good behaviour because organisations find loopholes and check boxes. In fact, they even dedicate resources towards manipulation.

How can this problem be solved? Mr Peshawaria has written this book to convince us that the answer lies in a shift from governance to steward leadership. Steward leaders have “the genuine desire and persistence to create a collective better future”. Their concern extends beyond their own employees and customers to society at large, the environment and future generations. They prioritise interdependence over self-interest, take a long-term view, have an ownership mentality, and display creative resilience when they are faced with challenges.

Mr Peshawaria adds, “They want to define their legacy not in terms of how much they acquired during their lifetime but in terms of stewardship—how much good they created and left behind.” If the author’s push for “a more inclusive and humane form of capitalism” seems too idealistic for your taste, hang on. He is not living in la-la land. He has thought this through.

He reminds us of the Pareto Principle, named after Italian economist Vilfredo Pareto, which is also called the 80/20 Rule. According to this principle, 80 per cent of effects or results depend on 20 per cent of causes or efforts. This implies that, if 20 per cent of the population chooses steward leadership that would be enough. To actualise this 20 per cent, we need a values-based revolution. After all, steward leaders do not want to create only economic value. They want to leave the world better than they found it. This mission is what drives them.

The author is aware that feel-good ideas need to be grounded and implementable, so he offers real-life examples. Count Anton Wolfgang von Faber-Castell, the eighth-generation leader of the German family-owned business that is best known for its exquisite pencils, wanted to be an investment banker but his father’s death curtailed his career on Wall Street. Luckily, he discovered that running the family business was not as boring as he imagined it would be.

Instead of thinking only about the future of his descendants, he thought about the future of the planet. He started a sustainable forestry project in Brazil in the 1980s, which ensures the continued supply of wood for the company but also neutralises the company’s carbon footprint. The ten thousand hectares of pine forest absorb 900,000 tonnes of carbon dioxide.

“It takes 20 years for the pine trees to mature; reaping the fruits of success, if any, demanded patience and the long-term thinking that Anton said would have gotten him fired three times over on Wall Street,” Mr Peshawaria writes. Steward leadership requires courage and a high degree of intrinsic motivation because of the obstacles ahead. Why? “Creating economic value for shareholders the normal way is hard enough, but creating value by integrating the needs of stakeholders, society, future generations and the environment is much harder.”

Paul Polman, former CEO of Unilever, and John Mack, former CEO of Morgan Stanley, are two other examples cited in this book to drive home the point that steward leadership is neither anti-shareholder nor anti-profit even though it might be perceived as such when steward leaders make unconventional and unpopular decisions. When Mr Polman wanted to transform Unilever into a purpose-led organisation, he announced that the company would no longer provide quarterly earnings guidance to Wall Street. When regulators put pressure on Mr Mack to sell the firm to save the markets from collapse during the 2008 global financial crisis, he went against them. He felt responsible for saving the jobs of 40,000 employees.

In a nutshell, steward leadership rests on a strong moral compass. Mr Peshawaria argues that it can be developed. The reflective questions at the end of each chapter are meant to help readers with this inner work. Those who are inclined to write it off as woolly-headed would benefit from a tool that the author has developed to help management teams and boards assess the steward leadership culture in their organisations. While this book throws light on bad behaviour, it does so not with the purpose of shaming. It is geared towards improvement.

The reviewer is a journalist and educator who is  @chintanwriting on Instagram and X