Importance of ESG: The third age of enterprise is here

The new epoch is defined by purpose, it is about how a brand behaves with the larger community.

ESG industry
The last century can be seen as enterprise's first age, which was synonymous with the end product; its design, its features, its functionality.

By Deepak NG

The last century was defined by products – many of them great, some of them iconic, which changed the nature of society and the way people lived and worked. IBM’s Underwood No 5 Typewriter was one such example. Launched at the beginning of the century, it had a number of ‘generation-changing’ innovations, including the  ‘QWERTY’ keyboard that still defines today’s touch screen devices. The last century can be seen as enterprise’s first age, which was synonymous with the end product; its design, its features, its functionality.

Towards the end of the century, a new type of ‘enterprise’ came to the fore; one not based on the product itself, but on how it was made. The second age of enterprise was all about production: quality control, inventory management, logistics and the elimination of duplication and waste, all at scale. This was the era of Six Sigma and Lean Manufacturing, whose pioneers included Toyota.

To quote David Magee, the author of How Toyota Became #1. “At a lot of companies, if something’s going well and it’s profitable, they’ll move on to something else. But if Toyota can attach a hood in 8 minutes, they’ll find a way to whittle that down to 4 minutes, then 2 minutes, then who knows…”

The second age of enterprise impacted every sector, from manufacturing to technology. It was Motorola, for instance, which applied it to the latter, heralding the ‘second generation’ of Six Sigma in the 1990s.

What’s remarkable is the difference between these epochs. The production process wasn’t considered a selling point in the first age of enterprise. But by the second age, product reliability was largely assumed—consumers expected a certain degree of product and design quality; so the story had to be found elsewhere.

The same is true as we enter the third age of enterprise. Products and production methods are no longer sufficient to distinguish a brand or its proposition. The third age of enterprise is defined by purpose. What now distinguishes a brand is how it behaves with respect to the wider community, and how it engages with all members of society.

The evidence for this shift is compelling, and India is no exception. A few months ago, the chairman of the country’s largest housing finance company went on record regarding the same: “ESG and purpose-driven strategy is (now) an expectation by all investors today. This entails a range of issues from diversity, inclusion, climate risk, emissions, supply chains, labour rights, anti-corruption,” said Deepak Parekh, chairman, HDFC.

This sentiment is also being echoed by employees and consumers. According to research from LinkedIn, employees under 35 consider corporate purpose a priority; 40% ‘consciously seek to work with companies with a (stated) purpose’. As for consumers, 81% claim to be willing to pay more for eco-friendly products, while 83% are either interested in making changes or have already made changes in their lives to address the issue of conservation of energy.

This is the essence of the third age of enterprise. Over the next few years, it will be manifested across industries in India and will also influence the skillset and expectations of and from the workforce of the future.

(The writer is managing director, Dassault Systèmes India.)

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Photos