As we recently came together from all parts of the world for the first time in over two and a half years for our Spring Associate meeting for Inogen Alliance, a main focus of our meetings was around Environmental, Social, Governance (ESG). It quickly became apparent the differences of ESG integration and knowledge between regions and developing vs developed nations. For some ESG has been around for a while, whilst for others it’s a new acronym and being pushed down from the headquarters of larger multinational organizations for their corporate reporting. This wave of ESG is not slowing down but gaining momentum. In this article we’ll look at some of the most pressing ESG trends and insights we discussed across our global environment, health, safety and sustainability consultants as we have been integrating ESG into all of our practices for global clients.
Megatrends Leading to Increased ESG Pressure
Guest speaker Dan Bena, ESG/Corporate Purpose executive, shared some global ESG megatrends and a growing mindset shift that have been pushing business and society towards a more sustainable outlook, measures to demonstrate authenticity, and telling compelling stories of impact. In a video from the World Economic Forum, five top megatrends identified in recent years have been the “hot house” of Greenhouse Gas emissions especially CO2 emissions, rising sea levels, citizen actions and protests, green energy, a nature first mindset, and climate neutrality. Considering the implications of these across business and populations globally it is no surprise that there has been a push for change and action. That action is increasingly associated with elements of ESG, sustainability and reporting frameworks to benchmark progress against lofty goals toward a net-zero future.
Key Drivers of ESG
ESG has continued to expand from what started as a series of metrics embedded in the investment community to a more holistic approach among many stakeholders. Key drivers and stakeholders for all companies to consider with their ESG strategies include:
- Financial communities which include ratings, rankings, and access to finance
- Society and consumers across generations and sectors which now demand social purpose, sustainable business models related to impacts on environment and ethical corporate governance and leadership. Purchasing behavior is more purpose-driven than ever and consumers loyalty ties deeply into a company’s purpose.
- Policies and regulations which are driven at the local, national and international levels and vary but many already include environmental or social elements or will in the near future.
- Markets are favoring those companies that are successfully integrating ESG into their operations including responsible supply chains, while continuously isolating those who do not. This integration increasingly makes the company more resilient and helps future-proof it for decades to come.
"We have to learn that ESG is not any more about doing things right within the fence of the company, but understand and manage the material topics within the whole value chain. Become part of the solution for society’s challenges. Offering smart services, managing sustainable supply chains, it is about a deep and responsible understanding of one’s business," Christian Plas, Managing Director denkstatt Austria.
Shift of ESG Corporate Ownership
One trend discussed in our panel of ESG consultant experts is the shift many companies have made more recently in moving ESG and Sustainability initiatives from where it has traditionally been with marketing communications or corporate foundations, to the C-Suite. This includes the CEO, the Chief Sustainability Officer, and increasingly the Chief Financial Officer under financial reporting. This shift reinforces the need for more robust reporting and reliable data to fulfill ESG expectations and reporting frameworks that many stakeholders are now requiring. The CFO traditionally has overseen many functions that require legal or more financially driven reporting, so this shift has moved ESG input closer to that level of data and analytics where they are used to financial metrics. This shift is now requiring CFO to disclose and report on non-financial metrics, where they will need to rely on real-time and accurate non-financial data for better ESG alignment that reflects the true state of the firm.
It used to be a “nice to have” with marketing and stories around doing good, and has now shifted to a must-have for ESG reporting to regulatory bodies and many categories of key stakeholders who have interest in "brands taking stands." To underline the importance of companies reporting on ESG and Sustainability topics, we are seeing many placing ownership all the way up to the CEOs of companies with 71% saying they hold the CEO personally responsible. Many are also calling for CEO or Managing Director remuneration to be bench marked with their ESG/sustainability initiatives. In a recent survey of nearly 1,500 CEOs globally, 93% said that they’d be willing to tie their compensation to ESG goals, or already do. But 65% said that while they want to make progress on sustainability efforts, they didn’t actually know how to do that.
An important part of “brands taking stands” is telling an authentic and compelling story, anchored in the trusted data and metrics discussed above, which highlights a key role for functions like marketing and communications. To tell the full story and engage all stakeholders which often includes the public or consumers, companies need to translate this data and reporting to more common terms and real examples. If they can’t communicate their sustainability initiatives along with the data to support it they will run the risk of being seen as green washing. In the same global survey of CEOs, nearly two-thirds admitted to their companies being guilty of greenwashing, with only 36% of executives reporting that their companies had measurement tools in place to track their sustainability efforts.
“ESG is defined in many ways. I view ESG as the robust foundation of metrics, programs, processes, and commitments that allow companies to tell an engaging, authentic, and compelling story to their many diverse stakeholders. When you get the combination right, it’s like finding the holy grail!” Dan Bena, ESG/Corporate Purpose executive.
Regional Differences in ESG Perception
In our meetings held in Spain one partner observed that attendees were largely from the US and Europe, noting that only about 17% of the world’s population comes from developed nations. Conversely, about 80% of the worlds current population lives in developing nations which are often under-represented. This is a significant discrepancy which informs how the world needs to address climate change topics and regulations, but also how we ensure diverse and inclusive content within Inogen Alliance. Our consultants in Latin America and the Middle East shared the regional views that ESG is a new term, and not as mature as in other markets. In Asia many companies did not understand the significance of ESG ratings of their company and are now investing more in improving their strategies and scores. Some companies only hear about ESG through their larger corporate headquarters as a need to roll up all locations into a global report. This new shift with a focus on ESG will take time. To do it right we can’t set goals without understanding the long-term impacts and individual regional differences and risks. One associate summed it up with a quote from Napoleon “Dress me slow, I’m in a hurry”, meaning if you rush chances are you’ll get it wrong and will have to re-do the same task over and over again instead of getting it right the first time. At the same time, the urgency of challenges like the climate crisis, water insecurity, and global malnutrition require action over inaction and don't afford the luxury of time, striking a balance is key.
“I view the pathway to a sustainable development / future as a continuous journey with pragmatic steps and commitments for consistent improvements rather than a one-shot destination. Simply put - taking short term actions for long term goals,” Emmanuel Zinsu, ESG Consultant HPC Germany.
How does Environment, Health, Safety and Sustainability (EHS) Consulting fit into ESG services?
Traditional EHS and Sustainability services has been and remains a foundational capability of Inogen Alliance and our associates around the globe. ESG elements overlays and fits into all of our traditional services in many ways. The unique expertise that we bring with our teams of geologists, chemists, engineers and more bring solid science-based approaches, data and proven strategies to inform good decision making at the CFO and CEO levels of companies where they are looking for ESG frameworks and reporting. We bring the consultant experience along with the technical background to pull together holistic approaches all starting with materiality and what’s most impactful to that individual business in that specific location anywhere in the world. Together we build resilience for these multi-national companies for a more sustainable future.
Tips for Successful ESG Initiatives
Over the course of our Spring Meetings we discussed many trends and strategies to enable successful ESG advancements, including the following:
- No matter the company or location in the world, it all starts with materiality and understanding what’s most important and where the business can make the biggest impact with collecting data to inform decision making, set benchmarks and make improvements.
- There is an increased depth and breadth of reporting frameworks which should start to converge to create a better more consistent system in the future. In the meantime, our consultants are well-versed across many frameworks and reporting structures to help identify the best solution for a company’s specific stakeholders and needs.
- Stakeholder voices are key to a successful long-term ESG strategy. Companies must identify and include all key stakeholders both internal and external and create reports and communications which are relevant and tailored to their needs.
- Building capacity around nature-based solutions is a big opportunity when we start to include biodiversity and larger implications to sites and operations.
- ESG strategies inherently build resilience in companies. These strategies should be flexible and adaptable as science evolves, regulations expand and stakeholder voices mature; ultimately companies that integrate ESG should be better prepared to address future challenges and mitigate associated ESG risks.
- You don’t have to solve it all at once, small steps in the right direction is key and understanding specifically your own business, local geography and what’s most important and material to your operations to know where you can make the biggest impact.
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