Ensuring ESG doesn’t just become about the ‘E’

Ben Henderson at Intelex Technologies makes the case for a wider understanding of ESG, where the focus is on societal and corporate governance issues as much as it is on the environment

 

The rise in importance of ESG has undoubtedly been accelerated by an increasing awareness of the world we live in, the challenges we face and the responsibilities we have – shaped by public discourse and our changing attitudes.

 

There is also an ever-growing political, social and economic expectation of companies to move beyond merely demonstrating their ESG credentials to being able to evidence their actual delivery on these promises in real and meaningful terms.

 

In today’s world, ESG is moving beyond organisations providing some form of social value or ‘contract’ – whether that is giving back to the communities in which they work or establishing corporate partnerships with charities; something now engrained in the fabric of company culture in Western economies.

 

These expectations are increasing the scrutiny placed on how companies are run – their leadership and culture, as well as compliancy, accountability and transparency.

 

The term ESG is widely understood to have first been coined back in 2004 with the release of the Who Cares Wins Report, published by UN Global Compact Initiative. Yet, almost 20 years on, many businesses have yet to fully grasp the nettle in meeting their ‘environmental, social and governance’ responsibilities.

 

Last year’s COP26 in Glasgow brought the climate crisis and the need to put the environment at the heart of government and business decision making into sharp focus – and inevitably the environmental emergency will be the driving force in meeting ESG standards.

 

Soaring temperatures, drought warnings and an energy crisis partly caused by our over-reliance on fossil fuels will continue to dominate the news agenda. In turn, all have an effect on the soaring cost-of-living, which grows more desperate on a daily basis.

 

Corporations were quick to jump on the COP26 bandwagon, and many have since been called out for their attempts at greenwashing – the overplaying of environmental credentials – and the demands for companies to put the environment at the heart of their business strategy is now widespread.

 

Regulators are becoming increasingly irked by corporate greenwashing. The Financial Conduct Authority recently warned some of Britain’s top-listed companies they could face “appropriate action” for overplaying their commitment to ESG.

 

However, it is not just corporate behaviour that is driving the ESG agenda and investment; consumer expectations are also a major factor. Thanks in large part to growing public awareness from the cumulative effects of high profile, well publicised mainstream narratives over recent years spanning all age demographics – from the ‘David Attenborough effect / Blue Planet phenomenon’, to Greta Thunberg.

 

And things only continue: in April this year, a YouGov survey found that the majority of European adults are worried about climate change and its effects – in Italy (83 per cent), Spain (77 per cent), France (77 per cent), Germany (66 per cent), Denmark (62 per cent), Sweden (61 per cent) and Britain (59 per cent).

 

Furthermore, we are living in a world increasingly being shaped by the views of much younger people – ‘Millennials’ and ‘Generation Z’, who are becoming more discerning about who they shop with and what they invest in. Whether business like it or not, this demographic is no longer accepting of the ‘profit at all costs’ mantra. They want their products and services brought to them in more sustainable and ethical ways, from companies that have a social conscience and treat staff well.

 

Such expectation from all generations has been coupled with ESG’s meteoric rise in the investment community. In 2021, analysis by Bloomberg Intelligence found that ESG assets were on track to exceed $53 trillion by 2025; representing more than a third of the $140 trillion in projected total assets under management.

 

So how do businesses harness the opportunity that ESG poses to become cleaner, greener and more accountable?

 

Integrating ESG into ‘good business strategy’

Take the example of the car manufacturing giant Audi, which has acknowledged that to attract and retain the best employees, particularly the young, its ESG offering – especially on environmental matters – must stack up. This might be in part due to credit rating companies such as Moody’s and Fitch, which have said that about a third of their ratings downgrades have an ESG component.

 

As we can see, ESG has the potential to grow business by benefitting all corporate stakeholders – including employees, customers, suppliers and investors. But it makes more than just good business sense: embedding ESG principles and practice also benefits wider communities and the environment.

 

News headlines often focus on the big names: the tech giants Amazon, Google and Facebook and their tax arrangements, or how companies work with policymakers, as we have recently seen in the release of the Uber Files. However, good governance extends to companies of all sizes in terms of driving best business practice commercially, socially and environmentally.

 

Is ESG just becoming about the ‘E’?

Undoubtedly, all three ESG strands are important. However, at Intelex we are seeing a clear emphasis from ESG professionals on the environmental side. In our most recent market research, we surveyed both EHS and ESG professionals across Europe, over half (56 per cent) said their organisation was prioritising environmentally focused activity, just over a quarter were focusing on social activity, and only one in 10 (13 per cent) on governance.

 

Given the escalating environmental emergency we face, this focus on environmental repercussions is unsurprising. As we mentioned earlier, high-profile events such as COP26 and national net zero commitments help drive both recognition of the scale of the issues and climate change action at societal, organisational and individual level.

 

It can be argued that environmental factors such as pollution levels or use of fossil fuels are easier to measure and track than social and governance factors such as supply chain transparency, human rights, ethics and values and business transparency. In many respects, ESG is about the ‘E’, for all the reasons we have mentioned above, but effective ESG must always be about the ‘S’ and the ‘G’ as well as the E.

 

How do we expand the focus?

At Intelex, we believe one of the best ways to ensure that ESG does not become all about the ‘E’ is through increasing employee buy-in to their organisation’s ESG efforts. Our survey findings showed that over a third of EHS and ESG professionals face challenges in gaining employee support. This raises the question: How do we drive buy-in?

 

The answer lies in removing organisational barriers to engagement. Our experience shows that key to removing those barriers is having the right tools and the right data at your fingertips, alongside the right training and engagement with the workforce to ensure everyone is on board from the outset. Time and again, we see an organisation’s ESG data located in a mismatch of software; many are using off-the-shelf products such as Excel or SharePoint.

 

This point is firmly backed by our research, which identified that less than half (47 per cent) of EHS and ESG professionals in Europe use some form of specialist ESG performance indicator software. Just as concerning, only 41 per cent use some form of dedicated environmental aspects and impact management software, while 40 per cent use risk management software.

 

Having a fully integrated and connected ESG system is something that a mere 13 per cent of our respondents have, but is arguably what many of them need to achieve their ESG goals and reporting tasks.

 

The figures reveal that most organisations are using solutions that are not fit for purpose, meaning they are unable to put together a complete picture of ESG activity. It is therefore unsurprising that the number one challenge faced by organisations when it comes to ESG is accurately measuring ESG performance improvement metrics and return on investment.

 

Ensuring it is not all about the ‘E’

At Intelex, we know that to have a real impact across environmental, social and governance factors, there are a number of key attributes that successful organisations have:

• They are conversant and compliant with the appropriate regulations for their industry and are able to easily access the information they need to streamline the process of managing compliance.
• They are confident in keeping up with the ever-evolving ESG mandate – swift to diagnose issues and effective in communicating up, down and across their organisations, ensuring all layers are informed, involved and engaged
• They are, without exception, using specialist connected technology and software to proactively track, monitor, measure and take action on ESG metrics.

This level of ESG maturity ensures that organisations are not just focusing on the ‘E’, and that the ‘S’ and ‘G’ are not neglected. We are seeing organisations move in the right direction across ESG and as this happens, it is likely that it will no longer just be about the ‘E’.

 

As such an important component in commercial, social and environmental progress, it pays to understand ESG – what it is, how it works, how it is adopted and how it is measured – for the benefit of your organisation and the world we live in.

 

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Ben Henderson is Head of Product Solution Consulting, EMEA at Intelex Technologies. The Intelex Technologies’ research report, Engaging Workers, Growing Business, Protecting the Planet is available for download here

 

Main image courtesy of iStockPhoto.com