ESG — why all the fuss?
This is a must-read for every businessman, CEO, CFO, Director. In this blog, we cut to the chase and heart of the problem and provide practical steps to start, re-start or improve your ESG journey.
Setting the scene
The adoption of ESG — Environment, Social, and Governance principles by businesses is all the rage. Every listed company is obligated to comply, and you have a new category of a person employed in organized called Head of ESG.
Indeed, Citigroup CEO Jane Fraser said that the bank will be expecting its clients to measure and communicate their emissions and that climate impact may determine which clients it chooses to serve in the future.
What the F.. is going on here? How can they say that ? is it fair? well, it goes to show just how important this is going to be.
However, the evolution of ESG today which is based on the UN SDG principles is like the wild west. Even the debate around Climate Change and the road to lower emission to1.5c is pathed with potholes.
Every public company today has a sustainability report, and this is a key feature of the Financial Report. ESG principles, legislation is being brought in to stop greenwashing and increase accountability.
In this blog, I will set out some key issues and practical steps through my initiative called the ESG Toolkit which I am promoting together with GCX a leading provider of ESG Solutions.
When I talk about ESG with people from the business world, and even in successful Real Estate groups either they are not into it and do not see it relevant or have not fully embraced it. Just take this example, I happened to have a chat with the general counsel for a quite large Real Estate player with strip malls across America. I asked him do they do ESG in the organization — while not quite sure what ESG is, I then used the word sustainability and then replied — Oh you mean Green Build and added not really.
So, at this stage of the ESG Journey, you have companies that have either embraced the ESG story or at least the Environment part of it or oompanies that do see it relevant yet or at all. After all, profit is still the benchmark.
The questions to ask — Why is ESG an important need to fight Global warming? Why are the social and governance angles not more important?
Is ESG a risk or opportunity? Is it a cost or can it lead to more profit?
So, let’s look at some of the issues:
1. The Big Hitters
The big hitters include Petrol, Mining & Industrial Conglomerates. These are companies that extract and exploit precious raw materials and have done tremendous environmental damage — Next up are Real Estate, Transport, and Food industries. This is where ESG is needed the most.
Businesses have been urged to move away from their reliance on fossil fuels after some of the world’s best-known brands were named and shamed in a list of this year’s top plastic polluters.
The Coca-Cola Company, PepsiCo, and Nestlé have been named as the companies with the worst waste records in a new report by environmental campaigners Break Free from Plastic (BFFP), with thousands of plastic items discovered across dozens of countries in 2020.
It is no surprise that big hitters have embraced ESG — I encourage you to google any of these and you see on the website a page focused only on sustainability.
Let’s look at https://www.adm.com/. ADM is a very large food conglomerate that in the past has come under considerable criticism of environmental abuse. They have fully embraced the ESG story, on their home page amongst other items they have this.
What about service companies, SMEs, and companies in the supply chain? Will they need to embrace ESG to keep their Customers (B2B, B2C) and be part of the supply chain?
The food chain is a major challenge, Tesco, the leading UK food retailer launched an initiative to get their suppliers onboard.
We live in the consumer age — we over-consume We like to travel, eat a good steak, own more than one car or property. Are we conscious of how buying or eating impacts the environment?
Today, around 30% of methane emissions are due to gas emissions from around 1.5 billion cows that are being used to produce milk and meat (1). So, should all become vegans? Today the alternative meat, milk, eggs, and more are all the rage.
What about fish? –approx. 50% of all fish caught is discarded.
Just look at this is an extreme and sic example,” Look carefully: these fins should be attached to the ultimate Apex Predator — the shark. I almost choked when I read those 1/4 million sharks are killed EVERY DAY for the sole purpose of making shark fin soup” Stephen Fern of https://ark2030.org
The Restoration of Oceans is a critical landmark program in our battle to end the climate crisis and the destruction of ecosystems that support life on earth. Restoring global whale populations is the equivalent of planting 100 billion trees.
Food Waste- The cost of food waste in the UK is GBP 10.2 billion, in Israel, net US$ 4 Billion the USA a staggering $161 billion. This has both huge Environmental & social impact.
Sometimes we do have a choice, but there are some things that are not in control.
So, the question of who is responsible is complex — For example, should one donate money to offset the Co2 when you fly? or drive?.
Is buying an Electric Car such a big advantage, CO2 saving over gas cars? They still need electricity to be recharged, metal components and battery disposal is an issue.
What about plastic?— Today there are good recycling options. Look at https://www.ubqmaterials.com/ and Israel company recycling plastic.
What about when buy or receive a Newspaper with all that waste of paper? In today’s digital world, why do we still need printed newspapers and magazines?
It is easy to blame the companies and products we consume, but our choices as consumers do make a difference.
3. Carbon offsets — Trees, Renewable Energy
Reforestation, Tree Planting is used as a way for companies to offset. How effective is this? Is the Carbon offset a price fair? Is this process too complicated?
In effect Mark Carney the United Nations’ special envoy for climate action and finance has stated:
‘The use of carbon offsets should be a last resort to cover only a small fraction of emissions if the world is to achieve meaningful decarbonization, according to Mark Carney, the co-chair of the Global Financial Alliance for Net Zero.”
In effect, each country needs to reforest and have forest conservation programs supported by their largest conglomerates.
So, in essence, going forward the focus has to be on reduction — Waste Recycling, Energy conservation, renewable energy, and green building.
4. The have and the have nots — a look at Social Aspect
There are huge pay gaps between the CEO, Management, and employee, poor working conditions, modern slavery practices, gender diversity, and the shoddy way businesses treat their customers. It is shocking that we the consumer put up with this. There are companies that see profit as the only measurement of success, The ESG train is a fast train that is bringing about a change.
I wrote in the past on how putting customers (and staff) first increases profits and the value of the company.
You also have companies not giving back to the countries and communities that they have profited from (or exploited in the past). We have the gaps between the rich and poor and these gaps are growing, Business leaders need to embrace e these global challenges. This is not only about the Environment, but world poverty and hunger. I ask how one drives around their Tesla, and not help the problem with world hunger?
I urge you to look at my blog — Global Hunger — The Gap
In this blog, I highlight the gap in which either one demands a revolutionary solution and another one calls shows an approach of simple solutions to tackle this global challenge
5. ESG ratings & greenwashing
There seems to be a lot of hypocrisy, greenwashing, and over obsession. Indeed, in a hard-hitting article by Matt Moscardi — Dec 1st, 2021, he makes an appeal. I want to make an official request of ESG regulators and the ESG community. Stop it.
“The wilderness where there is limited data but a vision for what you want to measure, whether it’s the carbon cost of an airplane ticket or a dividend paid to community stakeholders. Maybe this is why the regulation of ESG and the constant calls by ESG users to “standardize” and “align” and “identify the proper metrics” are unnerving. Or maybe I find it unnerving for a totally different reason: it suggests that, after more than 12 years in ESG, no one knows what the hell it is”
On one hand, he is correct, not all companies are equal, and different approaches are required for each type of industry, size of the Company, etc.,
On the other hand, …
“The world’s 20 largest ESG funds hold on average 17 fossil fuel companies in each of their portfolios….Asset managers have taken advantage of the hazy, unregulated definition of ESG to facilitate greenwashing.”
This is the call to action from Duncan Grierson Clim8 Invest.com and Duncan Grierson.
There is a similar argument, in this video, there is a fascinating debate how -How green finance is monopolizing the planet?
Indeed, Anna Shevel a climate and social change activist from South Africa “I am starting to see that using solutions created by the financial sector to regenerate nature/ food systems could become highly problematic… as we celebrate green finance yet it’s a trojan horse to cease these commons and commoditize”
Ok, so by now you are even more confused and shrugging your shoulders with all this hypocrisy.
So, let's reset the discussion –and let me share my definition of what is ESG?
Care for the Environment to make the world a better place for us and future generations
Empower your Employees and the Community to be independent and contribute to society
Do it properly within an integrated way that combines Kindness and Truth
Indeed, in the Bible -book of Kings, it says ” People look at the outward appearance, but the Lord looks at the heart”. Samuel 16.7
It is this spirit the approach to ESG has to be holistic and real, it needs to be based on both the mind (measurement) and the heart (willing to do good).
So, where do we start?
Quoting Bernard Jacobs .. the chief data detective at GCX who advocates the bottom-up data measurement approach.
“Currently, it is standard practice that organizations collect and report environmental data on a quarterly or annual basis and “verified” annually. [Can you imagine if accounting departments within organizations did the same thing, there probably wouldn’t be a company].
After verification is complete there is a scramble to get data prepared for Annual Integrated Reporting and Respond to Regulatory and Voluntary Disclosures.
Amongst other reasons, the main purpose of this exercise is to produce data and reports to help investors decide which organizations to invest in.
Whilst this has historically been enough, a simple high ESG rating no longer “cuts it”. Organizations now need to [with confidence] show improvement, introduce targets, convince investors that they have a plan, and it is working.
The bottom line is, if you’re not PERFORMANCE MANAGING your non-financial and financial ESG data on [at least] a monthly basis like accountants do, then you’re probably not going to meet your expectations and targets.
ESG data is far more complex and far more reaching within an organization than accounting data. By no means am I saying that accounting data is easier or less important, it is probably because it is less understood?
Over the past 5 years, I have, together with all the subject matter experts at GCX, have developed an interactive dashboard that enables complete visibility into ESG data and performance.
The combination of the GCX experts, the dashboard, and our advisory services deliver the following for our clients.
1. Data Confidence
2. Improved Reporting
3. Saved Time and Money
4. Reduced Carbon Footprint
5. Provided one version of the truth.”
One final thought
As a CFO, I have created an initiative called ESG 3.0 — A new way to engage with Data and ESG.
I am offering a Digital ESG Toolkit for companies. This is done together with GCX who is a leader in ESG in South Africa is serving many leading, blue-chip clients. They offer a holistic ESG approach and now wish to bring their expertise to the UK, Israel, and other countries. The solution includes automated Data Capture + Data Hub + Real-time Dashboard & Reporting and solutions for offsets & reduction.
More about the GCX Offerings can be seen in this link — https://gcx.co.za/downloads
I truly believe the adoption of ESG by companies is an opportunity to improve efficiency and profit, help the environment and make your company liked by Investors, staff, and customers.
Please feel free to reach out to me at firstname.lastname@example.org to start or re-start your ESG Journey