It’s hard to be strategic when your hair is on fire. And for any business fighting flames on multiple fronts – from international trade challenges to astronomical energy prices, labour shortages, decreasing consumer demand and more – maintaining a focus on your organisation’s environmental and social impacts is likely to fall down the list of priorities.
Scarcity of anything takes us tumbling down the hierarchy of needs, back towards survival. In 2020, Edelman provided evidence of this; with 79% of US investors deprioritising environmental, social and governance (ESG) criteria for investment during the Covid-19 pandemic. And now the war waged against Ukraine drives us back towards unsustainable energy sources. Scarcity and crisis drive us to adopt rational short-term strategies, which have long-term, costly repercussions. Finding examples of this in politics, businesses and government are not hard right now.
The ESG agenda was already taking some knocks, with a degree of distrust in companies’ credentials and investor claims of performance in their portfolios, alongside a rise in ESG litigation. But our own review of 100 FTSE companies shows ESG has clearly taken a firm hold in corporations. And – despite the hot mess of varying indicators used to track (particularly social) ESG indicators – some 70% of FTSE100 companies report some aspect of their ESG performance directly alongside their financial performance in 2021 Annual Reports.
This gives us a glimpse of which ESG indicators big corporations deem most important, and whether ESG performance is seen as having any parity of esteem in relation to financial performance. We see that greenhouse gas (GHG) or carbon emissions reduction ranks highest in terms of what gets promoted up front, with indicators relating to the workforce a close second. This is where The Young Foundation’s interest is piqued, and why we have chosen to undertake this work, seeking to deepen the ESG conversation here in the UK.
One story, not three
We know a transition to a net zero economy is fundamental to ensuring a bearable future. We know there is an ‘end goal’ in the target of net zero, making tracking progress possible, if not always straightforward – particularly when it comes to indirect value chain (Scope 3) emissions. We know we can apply the GHG measurement in reduced emissions as readily to the entertainment sector as to the aerospace sector: either you’re meeting your emission reduction targets, or you’re not. But we also know this transition will mean lots of change to our society. Change to how we travel, work, consume, heat our homes and more. And just as the impacts of climate change – which will continue alongside our race to zero, of course – disproportionately affect the most vulnerable in our society, so too will the transition to net zero. It is likely that without action from across all sectors, inequality will rise and the poverty premium will be rapidly accelerated through a transition to net zero.
When looking at the S of ESG, then, we are looking at a much more complex picture; where regulation, compliance, practice and measurement beyond labour practices is under-developed – and broadly recognised as such. Crucially, there is no uncontested end goal or ‘net zero’ equivalent in measuring social impact. Nor does it yet have the same commercial logic as environmental sustainability, for many companies. And while 14% FTSE 100 companies mention the need for a ‘just transition’ in their annual reports and 76% cite ‘communities’ as a key stakeholder, we do not tend to see a mature approach to connecting the E, the S and the G into one logic model – or one story which connects intimately with a company’s stated purpose.
Whether our collective, global ESG efforts fall by the wayside as troubles deepen – or whether crisis provides the spur towards a more sustainable society – is all up for grabs at the moment. Every action matters. For us, the Quest for the ‘S’ of ESG, is an initiative that cannot be disentangled from our quest for environmental sustainability.
Our report will drop in November, and you can join us for a presentation of the insights and debate with key industry leaders on 24 November, by registering here.