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\\ Weekly Insights \\
Welcome back to another year of ESG education with Nossa Data. We hope everyone had a refreshing holiday and New Year. I have two articles I would like to feature in today’s issue. First, I found a really nice piece from Schroders going over “The flow of ESG information as it should be versus how it will be.” Next, key questions companies need to be asking themselves about ESG.
(PSA: This newsletter features a lot of lists, it seems people like to write lists in January...)
How is ESG information flow meant to be working in Europe?
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Companies report on the sustainability of their activities as per the Corporate Sustainability Reporting Directive (CSRD).
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Asset managers use this information to report on the sustainability of their products as per the Sustainable Finance Disclosures Regulation (SFDR).
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Financial advisers then use this information for their discussions with end-investors to establish the latter’s ‘sustainability preferences’ as per the MiFID suitability test.
The reality is all that information does not happen in this order. Company reporting will not kick in before 2023. And the technical details on how asset managers report on the sustainability of their products won’t apply before 2023 either.
Here is a nice visualisation:
The second article I wanted to share is one done by Harvard Business Review that shares 10 questions that companies need to be asking themselves in terms of ESG. It seems like great timing as many firms confirm their upcoming ESG disclosure plans for 2022.
What should you be asking?
- Is ESG undermining your company’s competitiveness?
Are you doing too much ESG or too little? Too much, you could risk focus on growth, market share and profits. Too little, you could lose support from employees, customers, investors and potentially not align to incoming regulation.
- Does driving the ESG agenda mean sacrificing company returns?
ESG focus could be seen by some shareholders as harmful or compromising financial shareholder returns. However, we are also seeing that ESG index funds are out-performing their ESG peers. Investors must assess the value the ESG agenda creates for business.
- How are you navigating ESG trade-offs?
All aspects of ESG are beset with trade-offs that business leaders must navigate. For example, energy company boards have to weigh urgently tackling climate change against meeting the needs of the over 1 billion people who do not have access to reliable and affordable energy.
- How does ESG change due diligence?
Areas that could come into ESG due diligence include adapting products and services to climate-friendly materials and processes, evaluating diversity and wider employment practices, as well as revamping how companies engage with communities.
- Should you become a public benefit corporation?
There is a push by campaigners for environmental and social causes for companies to switch to either a public benefit corporation (PBC) or B-corps structure. PBCs are signed up to a governance code that is recognized in 37 states, whereas B-corps are corporations that are certified by the non-profit B-lab as meeting higher standards of accountability, transparency, and social purpose than traditional listed companies.
- How should corporations address societal concerns such as racial equity?
Business leaders must be guided by a framework that is transparent and consistent in addressing current events that highlight injustice. Recently, boards have been challenged to ensure that they are consistent in defending racial justice across all racial, ethnic, and religious groups.
- How do you develop a global approach to ESG?
A more comprehensive ESG approach must be inclusive of different countries and cultures. Companies must consider the expectations of other markets such as China and India versus firms in the Western world.
- How do you build an ESG framework that is future-proofed for tomorrow’s economic realities?
Often a large proportion of diverse staff within a company come from less-skilled workers who are more vulnerable to losing their jobs to automation. There is an onus on companies to take active steps to reskill their existing workforce specifically through well-developed trainee programs, apprenticeships, and on-going internships.
- How do you vet company performance of ESG?
Business leaders must decide how their ESG results will be vetted for compliance. ESG benchmarking remains highly fragmented. Therefore, the challenge for boards is to assess which metrics to choose and use.
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How should corporations navigate the ever-changing landscape of ESG?
Corporates need to anticipate where regulation on all aspects of ESG will land. Therefore, business leaders must maintain a dialogue with regulators and policymakers, and companies should look to cooperate and coordinate on best practices with their industry peers.
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