The conversation at the recent ReThink Hong Kong 2021 conference confirmed how much the focus on environment, social and governance (ESG) has increased since the start of the pandemic.
Today, 90% of central banks recognise climate change as a financial risk and society has been fundamentally altered in immeasurable ways by a pandemic that has highlighted inequalities, widened the poverty gap, and put a spotlight on climate change. The Sixth Assessment Report by the United Nations Intergovernmental Panel on Climate Change (IPCC) saying “Climate change is widespread, rapid and intensifying, and some trends are now irreversible, at least during the present time frame.”
As communication professionals, we have seen a surge in demand from clients wanting advice on how to position themselves and engage around ESG. However, the understanding of what ESG is varies greatly between almost every company and industry sector. While many are comfortable to follow the lead of their head office, many locally based firms struggle to understand where to begin to make it locally relevant, what to implement or how to integrate ESG considerations into their business, culture and communications.
Don’t confuse ESG with CSR
The most common confusion results from looking at ESG through the lens of a company’s corporate socially responsible (CSR) activities. While still popular, the world has moved on from the days of thinking a good CSR programme constituted a company’s social commitment. CSR is like the training wheels on a child’s first bike; they were great when you were eight, but we are a little bit more grown up now. And just like life we grow up and move on.
To make things more complicated there is no one-size-fits-all approach. Considerable flexibility remains between local regulations and industry recommendations that leaves companies confused as to what ESG strategies they should adopt. From my viewpoint, much more work needs to be done to help businesses understand their green and sustainability positioning. As advisors in this area, industry bodies also need to adopt a coordinated approach to explain what can be done and easily adopted to enable those beginning their ESG journey in the best way possible.
For those firms with the financial means and with access to experts and professional ESG guidance, ESG strategies are much more established. The best ESG strategy, like any good business strategy, comes from those who are building measurable ESG programmes and embedding them into the company’s DNA. The best ESG strategies originate from those who see this as emanating from the inside out and from the top down. In this way, there are countless opportunities to engage employees, management, boards, and external stakeholders to ensure ESG is core to the business and that everyone it is behind the changes and actions required. This also helps to reduce reputational risk.
What is clear through the new lens of the pandemic-impacted world, is that it is no longer good enough to be measured against CSR activation programmes like cleaning plastic up from the beach. While it is absolutely a noble and good thing for any corporation and its employees to undertake, it is often not measurable on its own and is a great CSR but not ESG initiative.
ESG strategies need to run through the veins of the company culture and align more broadly with industry and regulatory requirements so that it can measurably achieve sustainable and environmental goals linking to carbon reductions and emissions.
Cutting through ESG noise - who to align to?
For companies in the financial sector, there is an entire toolbox of acronyms from A to Z that relates to green and sustainable alignment. In the highly regulated insurance and asset management or investments sectors, firms often align with one or a number of principles and guidelines such as the GRI, SASB, SBTI, TNFD and many more, but it's about more than alignment or signing up to an organisation to agree with its approach. Being a signatory requires a company to continually demonstrate progress towards the objectives or principles it agrees to and report that progress back each year. This is often done in the format of a sustainability report.
A common option for companies committing to their ESG journey is aligning to the United Nations Sustainable Development Goals (SDGs) . While not many companies can adopt all of the principles, a selection of the most relevant options can support the right ESG strategy. As stated by the United Nations, the Sustainable Development Goals are a collection of 17 interlinked global goals designed to be a blueprint to achieve a better and more sustainable future for all.
Principles for responsible investment (PRI)
Many of our clients in the financial services sector align with PRI. This is a United Nations-supported network of investors working together to implement the six aspirational investment principles:
- Principle 1 : We will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
- Principle 6: We will each report on our activities and progress towards implementing the Principles.
Greenwashing and reputational damage
Green washing and being labelled a green washer sense fear into those in the corporate world, and this is a trend that is on the rise.
Companies being accused of not being fully carbon neutral despite their claims has impacted even major international brands such as Volkswagen and Nestle . Others have been accused of overstating their green investment activities, resulting in share prices tumbling like it did for DWS . Deal makers also need to rethink how they manage their reputation like Australian fossil-gas giant Santos had to, after being attacked by activists and facing court action for not doing enough to reduce emissions before its acquisition of Oil Search when the accuracy of its net-zero pledges were called into question.
Scrutiny of greenwashing will only continue to increase so all companies, large and small, and in every market must take care.
Staying ahead of the curve on ESG means asking the tough questions. But with board level commitment, great professional advice and a good integration strategy, successful approaches to ESG can benefit companies, their employees, and society as a whole.
This piece was written by Kim Spear, director of Sandpiper Communications Hong Kong. PRHK Viewpoints is an article series contributed by members of PRHK , Hong Kong’s PR & communications association.