Max Volokhov, chief research and development (R&D) officer at Mitgo, explores why a successful R&D division inevitably implements ESG principles, whether consciously or not.
- To become a leader in the long term, a company must experiment with projects and startups in a ‘sandbox’ mode.
- Without ESG, R&D would not survive.
- The innovation implementation processes in the core business of companies, with a number of caveats, also suit for building ESG on a corporate-wide scale.
Sustainability and corporate social responsibility is a pressing issue for companies of all sizes and industries. The main tools for assessing sustainability are the ESG criteria.
Meanwhile, R&D divisions are engaged in creating new products, services, and solutions. This is not a trend, but a necessity. To become a leader in the long term, a company must experiment with projects and startups in a ‘sandbox’ mode. This should become part of the routine. A guarantee of stable growth, if you will.
However, I decided to contemplate the contribution that R&D makes to the ESG of the entire company, and came to a surprising conclusion. It turns out, this division is the flagship of ESG initiatives. Otherwise, R&D will not survive! Now, let’s discuss this in detail starting with the ‘E’…
E — Environmental
Ecologists have come up with a humorous anecdote about themselves: “If I were rich, I would buy every digger a new shovel to double the speed of burying our problems underground.” It’s irony, but it underscores the importance of adequately addressing environmental issues, rather than just ‘sweeping them under the rug.’
The environmental aspect of ESG is the most discussed, popular, and controversial. It certainly has positive aspects: reducing negative impacts on nature, correcting the mistakes of rampant industrial growth, and so on. The problem here lies in the evaluation stage. Large companies such as Apple (NASDAQ:APPL) strive to demonstrate how new devices are increasingly less harmful to the environment. Unfortunately, this is not a universal benchmark.
Despite the difficulty of evaluation, it’s impossible to imagine an R&D division or a startup studio that would start a serious conversation with a startup whose product is harmful to the environment. On the other hand, there’s evident interest in an idea that helps make green decisions even greener. For instance, solving the problem with lithium in batteries, or what to do with spent batteries.
The R&D division acts as a signaler, raising the flag earliest when a startup with a beneficial idea for the company and society appears on the horizon.
S — Social
If companies cared about their employees as much as they care about profits, our world would be one big corporate party. It’s ironic, but it superbly underlines the importance of social responsibility in business.
Social responsibility, including the welfare of employees, is one of the most important aspects of the work of an R&D division. In startup studios with dozens of projects, each having its own founder (or even several), the standard income distribution systems inherent to classic capitalism become irrelevant. Such a situation requires a special approach to motivation and income distribution, which must be both fair and effective.
How do you motivate a founder? With shares? A percentage of revenue? How do you build a dependency on the remaining founder’s stake? These are obvious questions that R&D leaders have to grapple with. If we don’t approach this responsibly, distributing income fairly, we won’t be able to motivate project teams. How effective do you think such an R&D would be?
G — Governance
They say corporate culture is important for every company, but if it was as high a priority as projected profits, perhaps all employees would know everything about the company even before they’re hired. A whimsical thought — it underlines the importance of corporate culture. Healthy corporate governance and culture are the cornerstones of a successful R&D division.
Responsible management, a friendly atmosphere — these wonderful phrases are repeated like mantras by those who write corporate strategies. Almost everyone has come across the statement: “We pay a lot of attention to building and maintaining corporate culture”, only to find out in practice that this is, to put it mildly, not the case.
But while a traditional company may be able to afford this (yes, it’s not good, but let’s be realistic), an R&D division simply cannot exist without a healthy corporate culture. The reason for this acute necessity is exactly the same as with the ‘S’ — many projects and people are under one roof. Without a meticulous and thoughtful management structure, it would be impossible to unify this mass of talented, but very different employees.
R&D is the flagship of ESG in a company
The conclusion I’ve come to is very simple — a successful R&D division inevitably implements ESG principles, whether consciously or not. Success in our innovative activity cannot be achieved without the S, G, and even E.
Even more so: if ESG didn’t exist, we would have invented it. Moreover, the innovation implementation processes in the core business of companies, with a number of caveats, also suit for building ESG on a corporate-wide scale. We carefully and meticulously test the hypotheses of new motivation systems and, if the experiment is deemed successful, we begin a careful rollout throughout the entire company.