A combination of anxiety and enthusiasm can be commonly heard ringing in today’s boardrooms and their virtual equivalents when it comes to Environmental, Social, and Governance (ESG) issues. More and more leaders, investors and other professionals are wondering “What risks are we imminently facing?”, as pressure for ESG disclosures and more regulation is imminent. “How do we measure and manage when there are no common standards?” “Where do we focus, when the list of challenges is a mile long?” This is where enthusiasm should prevail as you scrutinise the business and turn the approach on its head and instead ask: “What opportunities can we identify to solve the big problems that can also add commercial value?” The answers to these questions are interrelated, as are the initiatives those answers will motivate. Think reimagined reporting, strategic reinvention, product and brand positioning and, ultimately, wholesale business transformation becoming modern superheroes in the process
The underlying forces at work are known. Businesses, investors, and lenders expect greater visibility of an ever-broader range of non-financial metrics to inform and understand diverse social and environmental risks. Governments’ ambitious, top-down commitments to limit carbon emissions are increasingly backed by new regulations and new taxes, and much more can be expected in the future. Activist shareholders, among many other stakeholders, are advocating for net-zero policies and for tighter linkages between ESG targets and executive compensation packages. Socially conscious consumers are more inclined to vote with the money in their wallets, encouraging businesses to re-evaluate their product lines and mission, as well as their role as employers of diverse and more socially responsible workforces.
The COVID-19 pandemic also created significant momentum for the climate change movement due in large to its impact on social mobility which in turn gave rise to a reduction in carbon emissions, as well as highlighting the need for strategic disaster planning and building stronger business resilience. As an example, Mexico City halted public transportation operations and bike usage soared. The local government saw this as an opportunity to both alleviate the risks associated with virus transmission and decrease carbon emissions. Collaborating with key transportation stakeholders 130 kilometres of temporary bike infrastructure was created. This is a clear example of a move towards sustainable environmental transformation and improving the health and wellbeing of millions of people through exercise and better air quality.
Against this backdrop, the ESG maturity level of companies varies widely. All the evidence suggests that ESG is here to stay. It may change names - it was previously called Corporate Social Responsibility. But the fundamental topic of the company’s licence to operate is here to stay. The following questions may arise; “Where do we focus? And “How do we mitigate risk?”
ESG puts the spotlight on sustainability not only for businesses where it is obvious from a value-creation perspective, like the FMCG sector where high volumes of water or energy are used in production. In Financial Service (FS) where the benefits of ESG may be more oblique – unless we’re talking about energy hungry Crypto currency! - there is significant potential for value creation and it is pertinent. As an example, conducting a sustainability analysis or ESG maturity assessment during a merger or acquisition (M&A) due diligence could reveal opportunities for value-creation. It can be a powerful way of showing how ESG can assist with market and brand positioning and how firms can be proactive in addressing the green agenda!
We have also have some tips on practical ways in which firms and investors can address the many regulatory ESG challenges:
Understanding the factors that are material to the asset or industry you are looking into. There are many ESG areas, however nine factors matter most when it comes to consumer optics: pollution, waste, natural resources, labour standards, customer protection, diversity and inclusion, moral standards and transparency, strong business structure, risk management (McDevitt, 2022).
Identifying the subgroup most relevant to the product or service in focus. It’s becoming increasingly important for consumers to align with companies and products that reflect their own ethical ideology. To ensure that the service or brand has the support it needs, you need to support and drive the same initiatives that your customers desire.
Curate consistent, high-quality and relevant data and define metrics that are mature and based on valid data sources.
Complement any quantitative data you have with qualitative data and benchmark against industry standards and best practice.
Identify and assess areas for improvement.
Translate areas for improvement into value propositions.
How can TORI help?
TORI can assist with your ESG agenda in the following ways:
Cultural Transformation: TORI provides a highly practical approach to understanding and influencing culture, distilling it down and making it manageable. In light of ESG practices, TORI can help create or refine diversity & inclusion programmes. TORI will work closely with you to understand your overall company strategy, and help identify your key cultural priorities that resonate in line with inclusive social governance
Optimisation & Efficiency: Every business faces issues of cost, efficiency and value for money. Instilling ESG practices in business processes requires investment but can also provide greater return on investment and greater stability. TORI can help you redesign your operating model to incorporate ESG values & processes.
GAP analysis: Research has shown that the integration of ESG within a corporation increases the overall value of the firm, however the data needs to be accurate. TORI can provide a detailed ESG gap analysis of your sustainability report, based on the SASB materiality map, where we can identify relevant ESG topics for your business.
Beergi, A. (2021). Why Is ESG More Important Now Than Ever For Your Business? [online] RegAsk.
Daniel (2020). Cycling Towards Resilient Cities: What Urban Mobility in Times of Crisis can Teach Us. [online] BYCS.
McDevitt, H.M., (2022). 9 ESG Factors to Rethink the Way You Do Business. [online] Televerde.