Companies can set ambitious environmental, social and governance (ESG) targets and still struggle to turn them into action. One reason may involve where those targets sit in the systems managers use to judge – and signal – what matters.

ESG goals can compete with the financial and operational targets managers are already expected to meet. When those goals sit outside the systems used to assess performance, they may seem less important. And managers can struggle to take ownership of targets that depend on decisions being made across the business, beyond their direct control.

A new study in The British Accounting Review by Professor Gary Monroe and Associate Professor Jeff Coulton from the School of Accounting, Auditing and Taxation at UNSW Business School, along with researcher Dr Rui Ding, examines how two features of a company’s performance system might influence the outcome: whether ESG objectives are built into the organisation’s core Balanced Scorecard, alongside its other strategic and operational goals, and whether managers have support to coordinate across functions.

In Scorecard Integration and Cross-Functional Coordination: Joint Effects on Managerial Commitment to ESG Goals, the researchers found that participants were more committed to an ESG goal when it appeared within the core scorecard rather than in a separate one. Cross-functional coordination also increased commitment and strengthened the effect of integrating ESG into the scorecard.

The results suggest that companies may need to do more than set targets and assign responsibility; they also need to make clear how ESG goals fit the business’s strategy and give managers practical support to pursue them.

“If firms are serious about achieving ESG goals and objectives, managers need to be committed,” said Prof. Monroe. “If I’m not committed to a goal, I’m very unlikely to exert effort to achieve that goal.”

ESG goals can be difficult to prioritise when managers are also judged on more familiar operational targets. A production manager, for example, may be asked to reduce carbon emissions while meeting targets for cost, efficiency and output. Cutting emissions could depend on decisions made by procurement or finance, leaving the manager responsible for a result they cannot achieve alone.

A/Prof. Coulton said it can be difficult for managers to feel ownership of a goal “that is at least in large part outside of their direct control”. The study asks whether the design of a performance system and the way work is organised can make that goal feel more important and perceived as more achievable.

A separate scorecard can send a signal

The Balanced Scorecard is a management tool that brings financial and non-financial measures together to show how an organisation’s strategy is being pursued. The researchers focus on a design choice: whether to integrate ESG objectives and measures into the core scorecard or present them separately.

While a separate scorecard gives ESG its own space, it may leave managers unsure how those goals fit within the organisation’s main strategy or why they matter relative to more traditional goals. As Prof. Monroe put it, a manager presented with two scorecards may ask: “Which one’s more important?”

For a manager accustomed to being evaluated on traditional financial and operational measures, the answer may seem obvious. “Probably the more traditional performance metrics, because historically, those are the ones I’ve been held accountable to,” Prof. Monroe said of a manager’s likely response. “And if they thought it was so important, why is it a separate one?”

Integrating ESG objectives into the core scorecard can signal that they are part of the organisation’s priorities, rather than an additional set of aspirations. It may also help managers understand how those goals contribute to the organisation’s longer-term success.

According to A/Prof. Coulton, the researchers’ interpretation is that an ESG goal incorporated into the main performance measures is seen as “a more real target” than one placed in a standalone measure. The point, he said, is not simply to add another metric, but to embed ESG goals in “the core strategy and performance system”.

The distinction is reflected in the study’s design. Participants were given one of two versions of a case about a fictional multinational consumer goods company. In one version, ESG objectives appeared in the core Balanced Scorecard; in the other, they were set out in a separate, supplementary scorecard. The company’s stated strategic priorities remained the same.

The study also varied whether the case described high or low coordination between the functions involved in meeting ESG goals. Participants took on the role of a middle-level production manager and were assigned a carbon-reduction goal that depended in part on decisions beyond their direct authority.

The researchers collected responses from 114 graduate students enrolled in advanced accounting and management courses. Participants rated their commitment to the goal after reading the case materials.

Learn more: How companies prepared for mandatory climate reporting

Those given the ESG-integrated scorecard reported greater commitment than those shown a standalone ESG scorecard. The researchers found that the difference was consistent with managers seeing ESG goals as more strategically relevant when they were incorporated into the main system.

An exploratory analysis also suggested that the way ESG objectives were represented in the strategy map – the part of the scorecard that connects objectives to the organisation’s strategy – may matter more than simply placing ESG measures in the core scorecard. The authors treat this result as supplementary evidence because their experiment did not independently manipulate those two design elements.

Responsibility without influence can weaken commitment

A scorecard can help explain why a goal matters, but it can’t, by itself, give a manager the authority, information or cooperation needed to achieve that goal.

That’s where the second feature in the study – cross-functional coordination – comes in. ESG targets often cut across departments: in the emissions example, meeting the reduction target may depend on production changing its processes, procurement sourcing different materials and finance funding new equipment.

When responsibility is assigned to one manager, but the actions needed to achieve the goal are spread across several teams, the manager’s sense of control may weaken.

"If firms are serious about achieving ESG goals and objectives, managers need to be committed"

GARY MONROE

Prof. Monroe explained that this can affect commitment. “If I only have partial control, but still have responsibility,” he says, the result depends on what other managers in other departments do. Without ways to share information and work together, “I’m going to be less committed to that goal”.

In the experiment, high coordination meant the case described more support and interaction among the functions involved. Participants in this condition reported greater commitment to the assigned ESG goal than those in the low-coordination condition. They also felt the goal was more achievable given their role and the support available to them.

A/Prof. Coulton said coordination can help because a goal may require “not just the manager’s work, but the wider organisational focus”. It can give managers a sense of “greater buy-in across the organisation”.

The two mechanisms worked together: the positive effect of integrating ESG into the core scorecard was stronger when cross-functional coordination was high. In other words, a clear signal that ESG is strategically important may be more persuasive when the organisation also provides managers with ways to act on that priority with their colleagues.

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For Prof. Monroe, the practical implications are twofold: integrate ESG objectives with traditional goals into the performance measurement system, and ensure coordination mechanisms when a goal depends on more than one part of the business.

These mechanisms could include regular cross-functional meetings, joint implementation forums or task forces. Their purpose would be to clarify who needs to contribute, help teams solve problems together and make shared responsibility visible.

The findings need to be tested in organisations

The results offer a way to think about the gap between an organisation’s ESG commitments and the work required to meet them.

The experiment measured participants’ reported commitment after they read a case scenario. It did not observe managers implementing targets in a company over time, nor did it measure actual environmental or social performance.

The paper also focuses on a single role and a single type of goal: a production manager with partial control over a carbon-reduction target. The findings may not apply in the same way to goals with different levels of control, to other functions or industries, or where ESG issues are contested within the organisation.

A/Prof. Coulton said the next step would be to examine how middle managers' behaviour interacts with what senior executives say and do – including how executives are evaluated on ESG goals themselves. A company’s scorecard may signal that sustainability matters, but the signal could be undermined if managers see leaders rewarded for other priorities.

The findings also leave open a broader question: how should companies frame ESG goals whose value lies in the environment or society, even when the financial case is difficult to quantify? A/Prof. Coulton said the goals may be based on both financial and non-financial impacts. In the study, the important distinction was where the goals appeared in the performance system.

That distinction gives managers a clue about whether ESG belongs to the business’s central work – but a scorecard can only do so much. For goals that depend on decisions across the organisation, commitment may also rest on whether managers can see a credible path from their own efforts to progress.

Five recommendations for industry professionals

1. Strategy and performance teams should consider integrating ESG objectives into the organisation’s core Balanced Scorecard, with a clear link to strategic priorities.
2. Business leaders should explain how ESG goals contribute to long-term success, rather than relying on the presence of a target to communicate its importance.
3. Managers responsible for cross-functional goals should have structured ways to share information, solve problems and coordinate decisions with other teams.
4. Executives should examine whether managers are accountable for outcomes they cannot meaningfully influence, and make shared responsibilities visible.
5. Organisations should test how scorecard design and coordination work in their own operating context, while tracking actual progress and managers’ commitment.