To be ESG or not to be?

I remember clearly the first year when all large public companies across the EU, including those listed on the Warsaw Stock Exchange, were subject to mandatory non-financial reporting under the NFRD, the predecessor of the now more-known CSRD. In Poland, it was a time of great challenges but also… chaos. Like a hot potato, the topic was passed from one department to another. From marketing to controlling to investor relations. ESG reporting was terra incognita for virtually everybody. And ESG experts were few and far between. As a result, the reports that were written back then differed widely – from minimalist texts produced just to comply with the new legal requirement to comprehensive and elaborate documents that mirrored sustainability reports of global players.

What has changed over the last 6 years? A lot and not a lot. The ESG issues have grown in importance, in particular in the context of the energy crisis and green financing. But in Poland, ESG is still seen by many as merely a costly and burdensome obligation.

From the perspective of the investor

ESG factors should play a key role in evaluating companies’ performance and have an impact on business decisions. However, as the “SEC Newgate ESG Monitor 2024” report shows, only 40% of investors in Poland would sell an investment in response to unethical company behaviour or practices – much lower than the global average of 49%. This gap highlights the need to build greater trust and awareness around ESG. And adequate communication of ESG issues is key to achieving that.

Authenticity as a secret to successful ESG communication

Therefore, when developing an ESG strategy, companies should not only focus on designing their sustainability-related activities, but also on planning an effective and consistent long-term communications strategy for their business environment with personalized messages for specific audience groups. What we are observing now is that as awareness and understanding of ESG issues are growing, so is the sensitivity to communications that can be perceived as strictly marketing-driven. That’s why the key word in ESG communications is authenticity. Sometimes this requires admitting outright that we are yet to achieve certain goals while indicating what steps we are planning to take in the future to improve our performance in a given area. But this does not mean that careful and accurate communication of ESG indicators has to be boring or uninteresting.

ESG as a must-have…

According to the “Sustainable Reality” report by Morgan Stanley Institute of Sustainable Investing, in June 2024 global sustainable fund assets under management reached a new high of 3.5 trillion, up 3.9% from the end of 2023, and the net flows of $20 billion were recorded in the first half of 2024, with Europe-domiciled funds being the main driver of inflows (+$32 billion). Bloomberg Intelligence predicts the value of global ESG assets to hit $40 trillion by 2030, with Europe set to remain the largest with ESG asset of over $18 trillion in 2030.

As a matter of fact, for companies today transparent ESG communication is the foundation for building their long-term reputation in the market. Without a commitment to ESG, they risk not only outflows of capital raised from investors, but also losing the trust of their stakeholders, including customers, employees and business partners, who are just as vital to their long-term success.

Author of the text: Agnieszka Trzaskoma , Affiliate Partner at SEC Newgate CEE