How to approach ESG as a listed company

Only those who have spent the past couple of years on a remote island could have failed to notice the emergence of ESG, the three-letter acronym that  represents “Environment, Social & Governance” that is featuring more prominently than ever in the investment lexicon.

ESG has gone mainstream – based on data and performance

For long-term shareholders and potential investors, a company’s ESG performance is no longer just a box-ticking exercise but an important guide to its long-term success as a business.

The term ESG was first coined in 2005 but it is only very recently that capital markets have seen widespread adoption of these principles. Commitment to change has been slow due to a lack of science-based, quantitative targets that allow for accurate measurement of performance and meaningful comparison with companies in a given peer group.

Technological advancements in ESG measurement mean that we are now entering a second phase of corporate responsibility based on data and performance analysis and not just rhetoric. As a result, it is no longer enough to simply ‘talk a good game’. Companies need to demonstrate engagement with ESG in a meaningful way with an understanding of the material issues, a clear plan of action, long-term objectives and a record of progress.

Another key factor driving ESG into mainstream discourse is the increasing desire of big business to embrace a socially responsible agenda from a risk management perspective, as a growing body of evidence emerges showing the link between a strong ESG culture and out performance.

Companies need to do more

The move for ESG from the side-lines, to the top of the boardroom agenda, has left many companies needing to play a rapid game of catch-up and the dawning realisation that there are knowledge and expertise gaps within their senior team.

Whilst some CEOs may have to check what the acronym means, their cornerstone investors are demanding immediate answers on what policies they have in place, which issues they are prioritising, and which benchmarks they are using to measure progress. Failure to engage means facing the prospect of being out-performed by your peer group.

One option in this situation is to ask for a list of tasks with associated costs to determine a course of action that will guarantee a knock-out performance when the next round of ESG performance scores are assembled. Unfortunately, the myriad number of ESG benchmarks and performance measurement metrics makes this impossible.

A strategic approach to ESG

When it comes to deciding which guidelines to follow for the introduction of an ESG programme, it is easy to get bogged down in a seemingly endless array of further acronyms. Should you adhere to the SDGs, follow the GRI or comply with the TCFD? Or maybe all three…?

There is a better way. Instead of getting bogged down in bureaucracy, contact Buchanan’s expert ESG team ([email protected]) to discuss the following five-step process to start moving in the right direction:

  1. ESG audit – Carry out an analysis of your current ESG disclosure and compare this with your peer group.
  2. Leadership statement – Draft and publish a statement from your CEO that outlines your overall approach to tackling ESG.
  3. Materiality assessment – Undertake a review to determine which elements of ESG truly matter to your business and industry.
  4. Implementation – Initiate new systems and processes as necessary to address the aspects of ESG where your business needs to play catch-up.
  5. Reporting – Put together an integrated plan across your website, annual report and other communication channels. Decide whether to create a standalone sustainability report.

While the above five steps will not make you an ESG superstar off the bat, they will place you on the right path towards becoming more proficient in articulating how ESG improves your investment proposition to your shareholders and potential investors. Buchanan’s ESG team has experience putting together bespoke ESG packages for listed and unlisted companies across a wide range of sectors.

Please get in touch for further information by emailing [email protected].

You can also sign up for our fortnightly ESG newsletter.

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