Over the last two years we have seen our inboxes bombarded with content on Environmental, Social & Governance (ESG) issues from companies: so much so that Google Trends data shows that there has been a 300% increase in the UK for ‘ESG’ searches between January 2020 and January 2022. Over this time, the issues that underpin ESG have moved from a ‘nice to have’ consideration to business-critical in terms of the C-suite agenda, with heads rolling and public apologies being issued for latent inaction on the part of big business.
Despite the measurable buzz around the acronym, many consumers and investors remain confused about what ‘ESG’ is all about. It brings together three distinct issues, where the challenges of improving the gender pay gap is grouped with reducing ‘Scope 3’ supply chain carbon emissions, despite their positions on different ends of the concern spectrum.
Cicero/amo recently published a global report on behalf of Architas looking into investor confusion on what is meant by ESG. We found that investors across Europe and Asia are more familiar with the phrase ‘Sustainable investing’ than they are ‘ESG.’ Furthermore, amongst the E, S & G, it is Governance factors such as ‘Honest and Transparent Accounting’ that were viewed as the top priority to investors. Unpicking these priorities for businesses will be an ongoing conundrum, with it becoming clear that there are no quick solutions.
However, the call for quick action is clear. As the number of firms committing to Net Zero targets for 2050 grows, few CEOs can realistically expect to still be in the seat in 28 years’ time to see through these commitments. Instead, shareholders and stakeholders are pressing for progress that can be measured over the next 12 months, to hold leaders to their word and force the required investment and action.
To rise to this challenge, businesses need to understand the data on their own internal performance. By fully looking under the bonnet, businesses can both benchmark current performance and prioritise areas for improvement. In an upcoming Cicero/amo report in partnership with International Regulatory Strategy Group (IRSG) and Accenture, we explore the data challenges for ESG Rating providers in the market currently. Our recommendations call for increased clarity, transparency, and global coordination in approach. While some may instinctively shy away from this technical side of the task, the devil is in the detail. The risk otherwise could be accusations of failure to take stakeholder demands seriously, or worse still of ‘greenwashing’.
With the data to hand, businesses can build out their ESG messaging and engagement plans to communicate on the issues that matter to them. This should vary across industries; for energy firms it may be about the efforts to decarbonise, for manufacturing firms it could be supply chain concerns, for pharmaceutical firms the challenges of building a resilient healthcare system for the future. This variety should be welcomed in driving forward purpose-led businesses.
In time, as the ESG agenda matures, we can expect that the acronym will again split out into its constituent parts, with firms facing different timeframes and pressures to address environmental, social and governance concerns. With regulators asking for increased levels of disclosure, the scrutiny that firms are under will also intensify. Communicating on ESG issues with clarity, consistency and credibility will be crucial for firms to transition from just talking the talk to meaningfully walking the walk.
This article appeared in the Cicero/amo February 2022 newsletter.
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