April 14, 2021 Promoting ESG
Where do Environmental, Social, and Governance (ESG) considerations sit within your organisation? Are they seen as core parameters which inform every decision from the board room downwards? Maybe they are less prominent, having been devolved to a single department or individual? Or, is ESG just something which looks great in the annual report but doesn’t really impinge on day to day company life?
Whatever your response, it might be time to look again. A poll in March 2021 by ICSA: The Chartered Governance Institute revealed that ESG considerations are rapidly rising up the boardroom agenda. So much so that 73% of companies agree there should be more transparent ESG reporting and disclosures. Moreover, 56% of companies now have a separate department for ESG considerations, with a further 34% devolving responsibility to the company secretarial position.
ESG as a concept isn’t particularly new. Some commentators have traced its origins back to the 1800s when certain religious groups encouraged ethical investing. Certainly it was around in the mid 1900s with trades unions and others promoting companies which demonstrated a social conscience. But even then ESG was more of a fringe concept than a mainstream driver. However, it is in this century that ESG has really started to make its mark. For example, in May 2020 a McKinsey podcast explored “Why ESG is here to stay,” commenting that “an increasing body of research shows a positive link between ESG performance and financial performance or value creation.”
Quite simply ESG fits with the mood of the times, delivering a response to a range of areas including climate change, social responsibility and the idea that companies should now look beyond profit to consider their impact on the wider world. As a result, ESG is starting to shape the way that companies are led and governed. For example, in March 2021 a joint report by PwC and the London Business School’s Centre for Corporate Governance revealed that 45% of FTSE 100 companies use ESG when setting targets for executive pay. Moreover, whilst one third of companies continue to view ESG in more traditional governance and employee engagement terms, 28% of organisations have broadened their approach to include areas such as inclusion and diversity, climate change and social issues.
What this means is that, boards can no longer afford to sideline ESG issues, particularly if they are to satisfy the demands of investors, consumers, and increasingly their own workforce. As a Times article in November 2020 commented, ESG is “A trend we can’t afford to ignore.”