Unsurprisingly, we are facing a shift in ESG as investors seek to invest in companies that are able to navigate and provide solutions to an ever-changing list of challenges.

In our 9th lunchtime webinar, we discuss the changes that can be observed in what is an important marker of viability for investors. We were grateful to be joined by our expert panel:

• Vanda Murray OBE (Chair of the Board at Marshalls, Chair Designate at Yorkshire Water, Non-Executive Director, NED and Chair Remuneration and CSR at Manchester Airport Group (MAG), and Senior Independent Director at Bunzl)
• Rob Woodward (Chair of the Board at the Met Office, Non-Executive Director at OneWeb, Chair at Ebiquity, Chair at Blancco Technology Group plc, and Chair of Court at Glasgow Caledonian University)
• Louis Cooper in his role as Chief Executive at NEDA (Non-Executive Directors’ Association)

Environmental, Social and Governance (ESG) criteria can be viewed as operational standards which investors are now actively using to screen potential investments. At board-level they are also now seen to be essential considerations in terms of both strategic planning issues, and the management of critical business risks. A lot of emphasis is currently on the reporting process – but there needs to be better appreciation of actual and practical implementation, as well as how you bring these areas to life.

‘Environmental’ factors can help investors understand the sustainability and eco-friendliness of a potential investment, ‘Social’ criteria are concerned with diversity, equality, inclusion, as well as how a company manages its relationships with staff, customers and suppliers, and ‘Governance’ includes areas such as  company leadership, executive pay, audit/ assurance, and attitude to risk.

You can listen to the full webinar recording here.

Having conducted a survey prior to the webinar, our guests shared their insights on ESG based on their personal experience and activities undertaken in the organisations where they work.

Where does the ownership of ESG sit?

Many of our attendees felt that board members must take the ‘lion’s share’ of responsibility for ESG within the company, followed by the executive team, and then the senior leadership team.

Vanda Murray felt that the boardroom must set the tone and the framework for ESG, with the importance of ESG reflected in the company’s strategy, but that execution must happen through the executive team and go right through the organisation.

“ESG should be embedded in the way we think and the way we make decisions. There must be an understanding of the impact of these decisions on all our stakeholder groups and the environment… it has to be as embedded as something like health and safety.”

Rob Woodward said that the result of this poll demonstrates the transitional nature of the current investing landscape, and the changing priorities of investors.

“If you’d have asked this question even 12 months ago it would be more dominated by board discussion, but I would say that the executives, wider leadership team and the staff in general are now really starting to understand the importance of ESG. We’re in a period of quite rapid transition.”

But while ultimate ownership must be at board level, day-to-day operations must also reflect ESG criteria and practices, with an understanding of challenges and opportunities throughout the entire team. As with many corporate policies, without proper understanding and implementation, ESG can be in danger of just becoming a ‘box-ticking’ exercise.

“You need to make sure that this type of activity is actually driven by behaviours and what people do day-to-day, rather than just data consideration,” Louis said.

How often is ESG discussed within your organisation?

All our panellists were surprised by the results of this poll, with the consensus being that ESG is something constantly on the minds of all board members, and it is increasingly being woven into corporate strategy.

With environmental issues and sustainability becoming ever more rooted in legislation, as well as at the forefront of community and societal awareness, many companies are constantly looking for ways to reduce their carbon footprint, mitigate their impact on the environment and be more socially aware.

Vanda pointed out that elements ESG are never far from the agenda. “At every single meeting there is something of relevance to ESG in terms of our strategy, the way we work, operate and think, as well as within our strategic planning.”

Rob said that in the wake of Covid there are growing expectations of shareholders to be able to articulate company ESG journey to investors; this means that it is usually covered at every board meeting, albeit in a more disconnected way. “We are much more focussed on discussing individual elements of it rather than the ‘entire waterfront’ at every meeting.”

What are the effects of ESG in business?

While any ESG impact might not yet have been seen by all of our respondents, ESG investments have been making the headlines in the last year for their ability to generate massive returns. This is seemingly due to increased public awareness and pressure from society for corporate responsibility.

Company ESG policy is likely to become an auditable report, just like the requirement for reporting environmental impact. But it’s important that executives recognise that ESG is an opportunity to improve and become more relevant to investors, rather than simply a regulatory challenge.

Vanda said, “For me, it’s about being a good corporate citizen as much, and as often as you can. Hopefully, you don’t make too many mistakes along the way and if you do, you rectify them by taking what you need to do and grasp it as an opportunity to do the right thing. It must be a win-win for everybody.”

The impact of Covid

As part of a live poll, 88% attendees said that the recent rise in company awareness of social and people areas, which is often attributed to the pandemic, will continue going forward.

The rise in employers and companies being seen as more “human”, and sensitive to the needs of their people, customers and stakeholders, is a trend which doesn’t appear to be going away.

This resonated with all our panellists, who said that investors are keen to ensure that companies have robust social elements to their ESG practices.

At Eton Bridge, we are also seeing more candidates asking for information about a company’s ESG agenda, these are discussions that wouldn’t have happened 12 months ago.

Too much focus on governance?

There is a general feeling that the governance side of ESG takes centre stage in company policy, particularly as it relates to environmental aspects as indicated by the results of the second live question in the poll. 55% of our audience felt that the current focus on governance has gone too far down a regulatory and compliance approach rather than being fit for purpose.

“But data reporting on the ‘S’ side is just as important,” said Vanda. “Are companies paying their tax, do they pay the living wage, what is their gender pay gap? These are just as important as the environmental side, and I think more companies need to step up.”

Rob also pointed out that small businesses are already struggling under the weight of constantly growing reporting requirements. “It’s a highly complicated and ever-changing area, it’s an onerous maze to have to work your way through,” he said. “So, I’d just like to inject a voice of reason, let’s make sure that companies are able to comply with the measures we are putting in place.”

NEDA undertake a lot of training, education and development that includes a better understanding of the governance landscape. “With an increased focus of attention on this area and with both current and new regulators engaging more with companies, board directors may reassess their personal risk / reward position and decide it’s not for them – just when we are looking to expand the pool and better respond to boardroom diversity concerns,” Louis noted.

As awareness grows, and society puts more importance on ESG, companies are already experiencing financial consequences of failing in their ESG strategies, whilst investors are looking at ESG as more of a marker for ‘ROI’ and investment risk.

Companies are increasingly recognising the opportunities that having ESG strategies in place can provide, as well as the risks associated with not taking it seriously enough.

Thank you to all who attended this webinar. We had so many fantastic questions come through to our panellists, many we didn’t have time to go through on the day, however, the panel have answered them in this Q&A for you here.