The Sustainability Series – Jumping on the ESG bandwagon

Jumping on the ESG bandwagon

by Lawrence Dore, Partner

 

Whilst Covid has ravaged the economy one of the silver linings has been the continued rise of ESG which has moved, what looks like permanently, from a sub strand of consumer marketing to a genuine topic in boardrooms. The drivers of this are well known and much discussed – increased regulation to meet environmental targets, consumer demands to understand the products they buy and the ethics of those they buy from, a genuine desire by employees to understand how they are contributing to more than just the bottom line. Belatedly shareholders have taken up the cause.

At one end of the spectrum genuine impact investors are seeking out companies who do good. At the other end funds are realising they need to meet consumer demand and provide well-articulated ESG strategies and performance criteria. This has fed through to a rise in ESG ratings agencies, accreditations and a need for companies to measure and publish their impact, underpinned by real KPIs.

The rise of ESG has therefore prompted a flurry of activity inside companies. We’re seeing direct contact with consumers explaining the provenance of their products and working practice. Busy IR teams are gathering data to answer investor questions and ESG teams communicating with employees and customers. Supply chains are under scrutiny, as are working practices and corporate behaviour. So, it’s surely all good?

Well yes, but…esg bandwagon

At DRD we are as guilty as any of ramping up our efforts to provide ESG services. Teams have been recruited, expertise acquired and meaningful work, of which we are hugely proud, has been done with our clients. The ‘issue’ is one of longevity and perseverance.

Having worked in-house, as many of our team have, we have seen the ability of organisations to mobilise for results presentations, an AGM, a new product launch or publishing the annual report. Enormous effort goes in and clear outputs are achieved. This is happening across the UK in public and private companies as they scramble to get their ESG fit for purpose.

The problem is that ESG won’t go away. There is no sigh of relief as the AGM concludes and other tasks can be focussed on. ESG is not about making a statement, but rather starting a journey. Employees have seen many internal initiatives come and go, and whilst enthusiastic about hearing how their employer has found its purpose, they’ll expect to see results, change and constant updates. Supply chains will need to reviewed continually and regulation won’t stand still.  KPIs once published need to be met, which means genuine corporate commitment. Shareholders’ thirst for knowledge will only increase – reporting is good but the vanguard of impact investors already prefer not to rely on published information and ratings scores but raw company data. Consumers too won’t be duped and a supporting, and often instant, media environment will quickly spot the contradictions between what companies say and what they do.

Too much?esg bandwagon

A frequent comment from our clients addresses the above concerns – we don’t want the tail wagging the dog. Too much enthusiasm, too much activity, too many goals and ambitions are simply unlikely to be deliverable unless the company becomes an ESG vehicle not a sales and profit generator. And whilst shareholders want to see a clear ESG strategy, they continue, largely, to hold their stocks based on earnings and dividend growth.

The above is perhaps a deliberately simplified characterisation of the pressures that embracing ESG can create but there are some clear learnings that ought to at least be considered when embarking on the ESG journey:

  • Before going public ensure you understand your business and what it does. Where does it have genuine impact, where does it do real harm and what can it actually do to do more of the good and less of the bad?
  • How deep is the senior management’s commitment? Good, better or best? Not every company will be best, and arguably most do not need to strive to be so. There’s no point putting in place a strategy, to public fanfare, which can’t be delivered.
  • Do a little, well. Realistic targets, a clear pathway to achieving them and genuine change as a result – this is what companies need to show, doing a lot of little won’t move the dial.
  • Openness about challenges, and failure, if communicated properly, is acceptable.
  • Don’t pretend you have a magic wand to address deep rooted problems, but show the efforts you are putting in and don’t just focus on the outputs.
  • Accept this is a journey and make your stakeholders part of solution. Engage, seek feedback and communicate clearly. Is the information you have provided sufficient, what more could you show? If the demands are unreasonable, explain why, don’t be defensive.

Ultimately delivering your ESG strategy is a reflection of how your company is managed. Trust is the only currency that can weather storms, and as Covid, or political, regulatory and economic uncertainty have shown, there will indeed be storms.

Headline PHOTO Credit to: PawelMM at Wikipedia.

How DRD can help

We help our clients understand and articulate their impact in the world, analyse their ESG risks and opportunities, engage their stakeholders, develop strategy and tell their ESG stories. DRD has a dedicated ESG team with deep experience advising clients on ESG issues in both in senior in-house and advisory roles. For a conversation about how DRD might be able to assist please contact sustainability@drdpartnership.com.

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