Here are a few examples of how ESG-related risks have impacted companies around the world:
Environmental: Pacific Gas and Electric (PG&E) declared bankruptcy after it was found that the company’s faulty equipment, combined with drought conditions related to climate change, had caused two wildfires in California within the space of two years, killing more than 80 people and destroying properties. It has been termed the “first climate change bankruptcy”.
Social: In February 2017, Susan Fowler wrote a blog post about the engrained sexism and sexual harassment within Uber. The post went viral and led to CEO and founder Travis Kalanick being forced out of his job.
Corporate governance: Fashion retailer Boohoo was found to be lacking in internal controls with an inadequate corporate governance framework and poor leadership ethics. The company was found to have allowed third-party suppliers to pay less than the minimum wage to workers. These governance issues have led to a major restructuring of the business.
How ESG impacts business reputation
McKinsey states that a well-positioned ESG strategy “links to higher value creation”. The numbers bear this out. Sustainable funds attracted all-time high inflows of €120 billion in the first quarter of 2021. This is 18% higher than in the previous quarter and represents more than half of overall European fund flows.
One of the reasons for this is that investors are no longer just looking for the funds that bring the biggest return. They are looking for companies that understand the risks of failing to address environmental, social and governance concerns; companies that are taking steps to operate more sustainably and responsibly to not only avoid these risks but to flourish in the future.
ESG concerns are at the forefront of the minds of investors, with pressing topics like the climate crisis and diversity and inclusion in the workplace often leading the news agenda. Consumers have also awakened to the idea — 81% of people expect companies to be environmentally conscious in their advertising and communications. This means that anything you can do to promote the ways in which you are advancing your ESG efforts will impact your business reputation positively.
And you not only have to do it, but you also have to report it. Not only because for most companies, but also because people should know you are taking this area of the business seriously. This is why investor relations officers (IROs) should highlight their ESG successes and future plans at the half-year review.
What is ESG communication?
ESG communication is the sum of all sustainability-related messages that you broadcast, through earnings reports, half-year reviews, press releases, social media posts, blogs and any other mediums. It informs people about the ESG-related policies and practices you have in place.
This should be a cornerstone of your investor relations strategy, keeping shareholders and potential shareholders informed of your progress and future plans in all areas of ESG. Through their comms, there is a real opportunity for companies to show they are serious about integrating ESG in their business strategy.
7 Best practices to strengthen your ESG communications
1. Define your purpose
In his recent letter to CEOs, Larry Fink of BlackRock spoke of the importance of defining a purpose for issuers, and this links to the company’s approach to ESG. As Fink says,
“[stakeholders] don’t want to hear us, as CEOs, opine on every issue of the day, but they do need to know where we stand on the societal issues intrinsic to our companies’ long-term success”.
Businesses must navigate ESG topics in order to thrive in a world where scrutiny is ever more intense. The focus on the climate crisis, for example, is only going to intensify in the coming years as leaders look to meet the tough targets set by the Paris Agreement.
It is not enough to set a vague goal of being more environmentally friendly; you need to be specific. You must make it your purpose to drive down the amount of carbon your company consumes, for instance. By developing a strong, clear purpose, it is easier to communicate your message and you can more easily make a real, measurable difference going forward. It is a chance to really highlight your business values.
2. Create a compelling narrative
Storytelling is a universal human experience. It has existed in all civilisations, and some believe that it developed soon after language came into existence. People respond favourably to information delivered within a compelling narrative, and this is why you should communicate your ESG report in a way that tells a story. For your half-year review, take the audience on a journey with you and engage them with this effective communication technique.
Explain what ESG means to your company, why it is important for you to meet your goals and how it will improve the business in general. At a time when many issuers are all trying to boast about their ESG credentials, creating your own story gives you a unique voice amongst the noise, setting you apart from the others.
3. Let your leaders do the talking
Initiative on all matters relating to ESG needs to come from the top of the organisation if you are to develop a truly sustainable culture. If leaders are not seen to set the right example, it can have a domino effect across the organisation. This is why having your leaders present the ESG story at your half-year review is a powerful move. It shows your stakeholders that they are navigating the organisation and its culture to a sustainable future.
4. Embrace end-to-end transparency
One of the concerns with so many businesses battling for responsible investment is that there will be a proportion of them who overstate their sustainability achievements. Greenwashing, where organisations misrepresent how environmentally friendly they actually are, is perceived as a risk for investors who want to make sure they work with companies that are truly committed to ESG.
To counter these worries, you should be transparent in reporting ESG efforts. Show those witnessing your half-year review how you have adjusted your systems and strategies to embrace ethical and sustainable practices.
The review should also provide detail on those efforts that have not paid off, along with information on how you intend to rectify situations where you have fallen short of expectations. This fosters trust that you have the right intentions and that you are working hard to achieve the desired effect.
5. Make sure you practise what you preach
It is very easy to send out platitudes in your external communications, but you have to back that up internally. A Twitter bot was set up ahead of International Women’s Day in 2021 to call out companies tweeting in celebration of the day, but still pay women considerably less than men within their organisation.
Before you can own sustainability in your communications and reports, you need to ensure that your internal practices align with that image. If not, you can be seen as hypocritical and it could damage trust in your brand.
6. Centralise your ESG content
If you want to promote your ESG credentials effectively, you should collate all the information you have in one easy-to-find place. Creating a section of your website to host reports, results, press releases, press coverage, specially made videos and more allows your external stakeholders to browse through and find the details behind your headlines. Point your audience to this resource for further information.
7. Measure your impact
You should make sure that you are moving in the right direction with your ESG policies and report this impact and progress in your half-year review. By showing growth in your ESG efforts, you can prove your impact in your communications to stakeholders.
Using BoardClic’s ESG Maturity Assessment, you can produce a quick and easy ESG assessment that tells you where you are and where you should focus your efforts in the future to further improve your impact.
What are the most important ESG metrics?
As a priority, you should make sure you concentrate on carbon reduction and energy efficiency relating to climate risk. With governments instigating climate targets, these will be the most important metrics for helping to achieve impactful results. Social issues like diversity and inclusion, as well as pay equality, are important ESG metrics, as is safety at work. In addition, diversifying the composition of your board of directors should be a priority, ensuring that you have a rounded selection of experiences, achievements and skills on board.
How does ESG reporting tie in with financial reporting?
Accenture reports that “the ability of companies to raise capital will increasingly be tied to sustainability objectives”, showing that ESG and financial reporting are intertwined already. In addition, the mandatory reporting requirements mean that ESG reports will require the same level of oversight as financial reports.
What are material issues?
Material issues are those issues that have the greatest impact on an organisation and the way it creates long-term value. ESG concerns are becoming more important as material issues that companies must account for in order to flourish.
It is important to create a story in your ESG communication and to back it up with real substance. Shareholders want issuers to walk the walk as much as they talk the talk. In your half-year review, you must engage your audience, be transparent, show that there is a top-down culture of sustainability and prove that you are focused on continuous improvement of your sustainability efforts.
An ESG Maturity Assessment is a cost-effective way of assessing where you are in your ESG story, where you need to improve, how aligned you are within the company on ESG issues and how you can uncover the areas with the greatest potential. These results can then inform how you frame your ESG achievements in your communications strategy. Request a free demo for your business today
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