ESG: each letter counts

6 Apr 2020

ESG and its role as a key determinant of corporate behaviour will certainly be accelerated by this crisis.

By Lawrence Dore, Partner

ESG on the boardroom agenda, but what next?

Over the past five years ESG and its role as a key determinant of corporate behaviour has placed it firmly on the boardroom agenda. Initial pressure from activists and environmentalists has broadened, with finance directors and CEOs facing routine questions from shareholders whilst consumers are beginning to vote with their feet.

A strong ESG policy is increasingly seen not as a box-ticking exercise but as an indication that the board has put in place a long-term strategy that will deliver sustainable growth – in other words, that through ESG they are future-proofing their businesses. This is in all stakeholders’ interests.

Whilst no definition or set of standards has become uniform, companies are working hard to identify, put in place and articulate relevant strategies to meet the demands of today and tomorrow.

The focus so far

Much public focus and attention has to date focussed on the ‘E’ with huge progress on capturing and reporting in areas such as emissions data.  Cop26, even though it has been rescheduled, will be a genuine accelerant which will increase focus on corporates and the actions they are taking. We expect governments, via regulators, to follow Cop26 with stricter targets and tighter deadlines. Shareholders, suppliers, consumers and employees will demand to know, in ever greater detail, exactly what any given company’s ESG strategy is and how it can be measured. Performance will be tracked, offering the ability to both shine and, conversely, face criticism.

‘G’, whilst less newsworthy, is being tackled in boardrooms across sectors and underpins and reflects genuine commitment from the highest level. Without good governance few programmes will have, and be seen to have, any real traction or credibility. Companies will need to be able to demonstrate that policies do not just appear in annual reports but are being managed and monitored, and reported to the board by a member of the SMT.

‘S’ has, in our opinion, leapt to the fore in the past weeks as a hugely powerful force for good, showing just how ESG, far from corporate jargon, is about companies, organisations and individuals taking actions that benefit society in the most hands on, often dramatic, way.

Unlike many historic CSR initiatives which have at times smacked of greenwash, we are witnessing everything from mass activity to highly targeted actions with real impact on society. And when these actions align with a clear corporate purpose the impact is both profound today and will bring huge benefits in the future.

A few examples that strike us are:

  • Luxury fashion houses LVMH and Burberry switching production from perfume to hand sanitizer and from clothes to protective gowns respectively
  • Food retailer Morrisons supporting its colleagues with a hardship fund and its small suppliers by providing them with immediate payment
  • BT leading the telecommunications industry by providing unlimited downloads for all its customers, to support those working and learning from home

At DRD, we were pleased last week to be able to help exovent, a group of volunteer citizen scientists, clinicians, academics, engineers and manufacturers – working with Marshall Aerospace and Defence Group – launch their concept for a simple, innovative, low-cost ventilator, which can be mass produced in the UK and globally to help beat the COVID-19 crisis.  As well as developing the communications strategy, we have been reaching out to our international government contacts to help other countries access the technology.  You can read more about it here in the Independent.

Beyond CSR

What do we see the implications for the ESG movement to be as the world works through this crisis?  Whilst it’s too early to have any sight of this we do believe we’ll see:

  • Greater focus in boardrooms on aligning business activities around a clear purpose that demonstrates the company’s impact on society
  • Continued pressure from investors to understand what measures their investee companies are putting in place to ensure they have a sustainable future that can thrive under ever greater scrutiny
  • Increased demand from employees to understand the role their employer plays in society, and the actions they can take to be part of a making a meaningful contribution
  • A renewed drive to understand benchmarks and indices, and the need to align and report against them

None of the above, in our mind, represent a threat – we see ESG as a huge opportunity for companies to look inside and gather data, measure impact and implement strategies that will drive both business performance and reputation throughout the next business cycle. This crisis has not created an opportunity – the opportunity was already there – but it’s certainly going to be an accelerant for change for good.