SDG, ESG, ROI, NPS...WTF!?
You really don’t know the depth of thinking and character of a person and whether they are steered by a moral compass or pure greed until you have some uncomfortable discussions…
Someone I’ve known for a while now and whom I know to be extremely well educated in an academic sense but also extremely well-read made a blanket statement to me “that he doesn’t believe in the concept of ESG”. It blew me away.?Other people have made similar blanket statements about the United Nation’s 17 SDGs.
It just occurred to me that some people may be confused about the difference between the two, and others may not have considered the “Net, net” benefit the ESG frameworks affords companies, employees, consumers and investors. As always there are some people who simply don’t believe that NGOs (global bodies such as the United Nations) should have any say in how they run their business, and still believe that the primary reason for a company to be in business is to make a profit.
SDG stands for (United Nations) Sustainable Development Goals. ESG stands for Environmental Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability.
On the corporate side, ESG considerations can be broadly mapped to SDGs, as illustrated in the graph attached, which is a general representation that can be relevant to most sectors and sub-sectors. While companies find it comparatively easy to identify and align Environmental and Social considerations (as they invariably assume a directly mapped context to SDGs); association via their Governance function is rather indirect, and many times found to be linked to their existing environmental and social functions. Nevertheless, ranging from tangible to intangible associations, all of the 17 goals can be attributed to individual elements of ESG considerations.
Source: https://sustainometric.com/esg-to-sdgs-connected-paths-to-a-sustainable-future/
As a Founder or company owner (SME) or Chairman or CEO (large private or public company), you may be thinking…WIIFM (what’s in it for me)?
There’s a bunch of carrots and a couple of big sticks….
First the CARROTS
INVESTORS:
88% of surveyed international investors expect companies to provide clear and appropriately detailed disclosure of their climate change emissions governance, strategy, risk mitigation efforts, and metrics and targets…
ESG-focused funds increased from
$285 billion in 2019 to
$542 billion in 2020 to
$649 billion in 2021
Source: ISS Governance - 2021 Global Policy Survey - Climate, 2021 Reuters, 2021
COST REDUCTIONS
Reduced operation cost from
- Energy-saving practises
- raw material cost
- Carbon Tax
- Water consumption cost
LONG TERM VALUE & BRANDING
- >70 % of consumers surveyed on purchases in multiple industries, would pay +5% for a green product if it met the same performance standards as a non-green alternative.
Source: Mckinsey & Co., 2012
RISK MANAGEMENT & STRATEGY SETTING
- Resilience to regulatory pressure?
- Avoid investments that might have long term risks (e.g., climate risks)
- Assess investment opportunities and future strategies from a sustainable point of view
EMPLOYEE PRODUCTIVITY BOOST
- Purpose & drive
领英推荐
- Positive social impact correlates with job satisfaction
- Retention of quality employees
- Focus on training
- Attracting new talents
Now the STICKS
REGULATORS
- Mandatory
- Government Support
Global State of Mandatory Disclosure
- EU
- 2014 - non-financial reporting currently apply to large public-interest companies with more than 500 employees.
- Singapore
- 2016 - the Sustainability Reporting Guide was published which requires every listed issuer to prepare an annual sustainability report on a comply-or-explain basis.
- Hong Kong
- 2020 - the Hong Kong Stock Exchange (HKEX) introduced new ESG reporting requirements for listed companies, with both mandatory disclosure requirements and ‘comply or explain’ provisions
- Indonesia
- 2020 - according to Indonesia Financial Services Authority, all listed companies are required to publish Sustainability Reporting starting
- The United Kingdom
- 2021 - draft introduced, If passed, the regulations would require UK-registered companies and financial institutions to disclose climate-related financial information.
INTERNATIONAL REPORTING FRAMEWORK
● Climate Disclosure Standards Board (CDSB)
● The Sustainability Accounting Standards Board (SASB)
● The Global Reporting Initiative (GRI)
● Science-Based Targets initiative (SBTi)
● UN Principles for Responsible Investment (PRI)
● Carbon Disclosure Project (CDP)
● Morgan Stanley Capital International (MSCI)
● Corporate Sustainability Reporting Directive (CSRD) (EU standard)
In February 2021, the International Financial Reporting Standards Foundation (IFRS) announced that it will move forward with developing a worldwide sustainability reporting standard.
Closing the loop, It’s hard to understand a person who says “they don’t believe in ESG” if that person owns and runs a company or invests in startups or more advanced stage private companies (i.e., angel investors and venture capital funds), as it’s not a case of “if” but “when” they will be impacted by it, and generally in life it’s better to be out in front of a wave of change and navigate your path than being smashed by it…just asked the Dinosaurs…oh that’s right, we can’t!