Making Environmental, Social and Governance a strategic asset

Environmental, social, and government metrics are all the rage today, both in boardrooms and the media. The question is, how do CEOs really feel about ESG? A recent survey by PwC found just 22 per cent of the more than 4,000 C-level executives surveyed said they had zero commitments to global environmental initiatives. As for now, companies are focusing more on value creation than sustainability.

Investors are increasingly concerned about ESG criteria.

At first, it was the rating agencies specialised in sustainability that mainly focused on these concepts, with a greater or lesser focus on some of them depending on the sector to which the company analysed belonged. The sustainability or CSR teams were responsible for providing the information to these agencies, which in turn shared their ratings with their clients.

Institutional investors have historically considered corporate governance issues to be relevant for investment in banks. In recent years, their interest in climate and social issues has progressively increased.

Some of the large asset managers, especially those with passively managed funds (such as Vanguard, State Street, BlackRock) and also some actively managed ones have created specialised teams, developing internal methodologies to assign their own sustainable ratings.

Environmental criteria analyse the contribution and performance of a business in addressing environmental challenges (e.g. waste, pollution, pollution, greenhouse gas emissions, deforestation and climate change). Social criteria assess how the company treats people (e.g. human capital management, diversity and equal opportunities, working conditions, health and safety, product misselling), while corporate governance criteria examine how a company is managed (e.g. executive remuneration, tax practices and strategies, corruption and bribery, and board diversity and structure).

The rise of ESG criteria in the post-pandemic society

The coronavirus crisis has marked a turning point in the rise of ESG criteria, and more and more investments are prioritising ESG criteria. During the pandemic, it is social criteria have become highly relevant because of the pandemic, and that is why the vast majority of companies spent much more time during the health crisis on social issues than on profit-related issues.

But in addition to social, in 2020, and especially 2021, there has been an increased concern for environmental issues. That is why environmental criteria have also gained a lot of prominence in recent years. And it is expected that when normality returns, this factor will play an even more important role in the positioning of companies. Already today, investors have significantly increased their interest in how companies implement sustainability policies, or what policies are in place for the transition to a low-carbon economy.

Thus, companies should no longer view ESG criteria as an option or as something distant that does not affect them, but should increasingly consider that failure to incorporate them into their corporate strategy may in the long run lead to financial risk or a decline in their positioning. It is already clear to many experts that companies that better address environmental, social and governance factors can reduce risks and considerably improve their competitiveness in the market.