ESG: just three little letters, right?
Wrong.
The way an organisation seeks to protect the environment, take care of its social obligations and ensure transparent governance defines that organisation.
It is increasingly the basis for its relationships with employees, customers, suppliers and, yes, regulators. Because ESG is rapidly becoming subject to regulations.
This is no longer about being seen to be doing the right thing by producing an ESG report, added onto your Annual Report. It is about doing the right thing and being subjected to verifiable measurement, just like your financial accounts are. And the performance of your supply chain is firmly in your scope.
Because it is such an important topic, we hosted roundtable at the World Economic Forum in Davos this week. We had speakers from the trade union movement, the investment community, an NGO and one of Norway’s leading industrial companies. What was interesting was the broad consensus across such a diverse group: every organisation faces similar challenges.
E is about the just transition to carbon neutrality. It’s also about reducing waste, including single-use plastics. Every organisation is unique, with differing impacts. A service company’s focus, for example, might be on using energy from renewable sources and cutting paper usage, whereas an FMCG provider will have a lot more opportunity to make changes throughout their business and supply chain (Scope 3 emissions). But there are commonalities, starting with the need for data-based decision-making and measurement.
Environmental sustainability has typically been the focus of ESG. In fact, ESG has almost become a replacement for sustainability. But we carried out some consumer research last year which very clearly showed that consumers want to see a holistic approach to all three elements.
That puts a real onus on social, which of course starts with employees. It then extends to the communities organisations work in and to their supply chains. This is about looking after, and looking out for, people. It may start with giving employees time off to support a charity, which comes under what we used to call Corporate Social Responsibility. But it’s far wider than that. What impact is the organisation having on its neighbours? How are the raw materials produced?
And that dovetails with governance, because how the organisation is run informs the decision-making around environmental sustainability and its approach to people. Above anything else, transparency is what matters. If your stakeholders can see what you’re doing and why, they are more likely to understand it. That means having all the right processes in place, which in many ways is the easy bit and anyway is often highly regulated. Being prepared to be open is harder but also increasingly necessary.
You will have noticed that there are both carrots and sticks, which brings me to our area of expertise: ESG communications. You have no choice but to inculcate ESG into everything you do, because both your stakeholders and your regulators demand it. You also need to explain what you’re doing and why. Importantly, you need to recognise where you need to improve and show how you’re going to do better.
This transparency is essential. It gives people confidence. It can also save you from embarrassment because the information is out there and anyone who suspects you might have something to hide will be able to find it. But it is also important to be proportionate: of course you can’t say everything to everyone. Finding that balance in your ESG communications can be difficult to navigate and getting it wrong will undermine all your good work.
Lukasz Bochenek
Managing Director / Deputy CEO, based in Geneva
Lukasz is Managing Director for Switzerland, Belgium and UK offices as well as deputy CEO for Leidar. He oversees key international client projects and relationships. In addition, he manages external partnerships and memberships of Leidar.