The rise of ESG programs did not just come out of thin air.  Frankly, in many respects, ESG tied together important trends relating to sustainability, social justice, reputational damage and climate change.  Many organizations involved in the extractive industries already had elevated sustainability as an important priority.  Indeed, for years, a number of these organizations issued annual sustainability reports.

With increasing focus on environmental and climate change issues, stakeholders has pushed sustainability into a key role in the ESG framework. There are a number of relevant definitions of sustainability, and context matters.  As applied, sustainability reflects more than sustainable growth or financial performance.  Instead, the concept is broad enough to reflect an organization’s environmental impact, its dependence on natural resources and other inputs, and its iverall ability to continue to operate.

While I recognize this interdependence among the concepts of environmental impact and sustainability, I would suggest another key relationship – sustainability and ethical culture.  An organization’s ability to achieve sustainability has to include its commitment to business ethics.

An organization may be committed to sustainable business practices but that requires achievement of an effective ethics and compliance program.  As part of this effort, an organization has to ensure that it promotes and maintain an ethical culture.

Companies that adhere to a positive corporate culture inevitable will make decisions that are not limited to whether a course of action is legal or not but will extend to a broader examination of stakeholder interests.  A commitment to business ethics as a framework for decision-making is more likely to promote consistent sustainability objectives.  A broad business ethics framework incorporates stakeholder interests such as consumers, shareholders, government regulators, community interests, and other broad issues of concern.

Ethical conduct is not necessarily equivalent to a “moral” judgment.  Such judgments can vary depending on an organization’s “moral” sensibility, some of which may not necessarily be relevant to an ethical decision-making process.  A stakeholder analysis requires identification of issues relevant to a specific stakeholder.  Once identified, as a theoretical matter, business ethics requires a weighing of each against competing interests. In conducting this analysis, an organization can analyze potential decisions and assess the impact in relation to the organization’s overall ethical code and values. As decision-makers work through this analysis, the organization can arrive at a decision that reflects stakeholder interests and the organization’s value framework.

A perfect example of such decision-making are actions that may be done above and beyond legal obligations. Ethical decision making is not co-extensive with legal lines between permitted and prohibited.  Instead, ethical business decisions may result in actions that are not legally required.  This is an important distinction – legal conduct is not co-extensive with ethical conduct.  To the contrary, an ethical action may not be legally required, but is taken to promote an organization’s ethical values.

Conversely, there are actions that are illegal that conflict with an organization’s ethical business practices.  Under the organization’s decision making framework, such decisions are wrong as a matter of law and ethical decision making principles.

The most difficult decision are those that may me legal but are nonetheless “wrong” under the organization’s ethical framework.  This is where a company’s value statement plays a critical role – an organization’s values establishes norms of conduct that are above and beyond questions of legality.

Sustainability, as an organizational matter, depends on recognition of this important distinction and the interplay between ethical decisions and corporate values.  Those companies that balance these considerations are likely to maintain a sustainable and effective ethics and compliance program.  On a broader front, a company’s organizational performance is likely to be more effective and sustainable over a long-term period.