“Sustainability and ESG criteria are at the heart of economic, political and business decisions and of social expectations. All parties, particularly companies, are called to action”
On the one hand, this is a field where regulatory pressure is significant. By way of example, in recent years the Sustainable Finance Action Plan (SFAP), the EU’s Green Taxation and the upcoming social tax, CRR2 and CRD5, SFDR, etc. have all been introduced.
Sustainable investment grew by 36% in Spain in 2019, and amounted to 285.45 billion euros managed in 2020.
Environmental risks continue to be very important in terms of probability and impact, and have grown the most in the period from 2015 to 2021.
86% of consumers take into account environmental factors when purchasing and 76% pay more for them.
78% of Spanish companies now include the SDG in their annual reports. Added to which, 45% of companies listed on the FTSE 100 include ESG targets in their incentives. This now accounts for 15% of the average weighting of all variable remuneration of companies.
In short, there is a clear need and a great business opportunity in establishing a strategy and a clear positioning regarding addressing environmental, social and good governance demands.
There must be an immediate response to the short-term agenda: climate change commitments (COP26 Glasgow), access to New Generation funds, the new Directive on Human rights, the Sustainable Finance Action Plan of the EC and the new non-financial reporting are all priorities. But, in addition, companies must find a way to tackle this challenge in the long term: sustainability already has a long-term agenda (2030/2050), and hence the needs will grow over the next 10-15 years.
There is a consensus in this new direction focused on sustainable growth and action under the ESG criteria in a proactive manner, but few companies are tacking this successfully. They are not receiving the acknowledgement and return expected from their commitment to the ESG. Communication and transparent dialogue with stakeholders are key to this end.
The challenge of sustainability is communication with the market, the government and society so that this is recognized, credible and attains its value, which will allow companies to attract consumers, investors, talent, allies and good relations with regulators. Generating confidence is the key to forging lasting and close relations.
It is primordial to appreciate the expectations, know where you are, and to then generate an internal culture, minimize the risks and develop dialogue and transparent communication that allow you to head up areas of something as broad as environmental, social and good governance questions where the company impacts its eco-system of relations.
Sustainable finance, how can I improve my position within the esg investment universe?
A sound position on ESG, as well as enhancing our credibility as a company vis-à-vis society and regulatory bodies, thus enhancing the loyalty of our current shareholder base, will boost access to new investors specialized in sustainable investment formats.
Any positioning work must be done from within, externalizing the existing and real commitment of the company toward prompting a more responsible, sustainable business structure, geared toward present and future social trends. A commitment aimed at reducing the impact of the risks that the company will be exposed to thanks to an integrated vision of environmental, social and good governance aspects.
The work on ESG positioning, as well as a need in today’s world, is an opportunity to connect with an increasingly more demanding and sophisticated investor eco-system in the use of metrics for the selection of the investment universe.
A new and more responsible society, where does the opportunity lie to avoid disappointing expectations?
The business world has embraced the capitalism of stakeholders, dialogue and active listening and this attention reflects the high expectations of the environmental, social and good governance conduct of companies. But in Spain, only 4 out of every 10 leaders claim that they actively take on-board the opinions of their stakeholders, a long way from the 60% in Anglo-Saxon markets such as the USA, Canada and the UK.
There is a growing need to develop multi-stakeholder platforms for listening and dialogue revolving around a mobilizing purpose and a common project, and providing the platform for dialogue with structure and content for its continuity that not only allows it to respond to ESG-related expectations, but also to improve long-term corporate decision-making.
More committed talent, how to convey my narrative and actions on ESG to better attract and retain talent?
By 2029, 72% of professionals will be Millennials or members of Gen Z, according to the International Labour Organization. This merely speeds up the need for companies to develop a more robust narrative on ESG matters.
Not just because this will be key to improving retention and engagement with current talent in a context in which only 20% of professionals claim to feel connected with their companies, according to The State of the Workplace 2021 by Gallup and 53% of companies are experiencing unwanted rotations of workers, according to McKinsey.
But also because the company’s contribution to society and the fit of corporate values with personal values is key when choosing the company that people want to work for, particularly young people. At a time in which it is not companies that choose their professionals but professionals that choose companies, those businesses that include ESG in their employer branding plans will enhance their market positioning and attract the most demanding candidates.
Growing ESG risks, how do I minimize my exposure as a company to climate, social and good governance risks
Most reputational risks that impact on the sustainability of businesses have their origin in environmental, social and good governance (ESG) corporate conduct that deflates the confidence of people in their different stakeholder environments:
- Environmental emergencies. Climate change brings with it negative consequences, in the form of events that harm the health and safety of people, that require exhaustive contingency and communication plans, whereby companies that are less committed to tackling this challenge will see their reputation more affected.
- Socio-political activism. Brands are coming under increasing social pressure to stake their claim, to some degree, regarding very different social causes, and are judged to the point of “cancellation” according to their public response.
- Problems of compliance. As ethical and regulatory demands grow regarding the conduct of senior company executives, the reputational risks produced by the breakdown of these standards grow to the same extent.
In order to mitigate, avoid and even reverse these risks, it is essential to anticipate critical events, prepare future scenarios, automate responses and participate in dialogue in real time with sufficient capacity to influence.
Public authorities. sustainable investment.... with a social impact
Adapt the reality to a universe in which company profits will need to be aligned with the benefits to society as a whole. Sustainability, and also investment with a social impact, is no longer a choice, but an obligation, and this is the main challenge facing companies. This shifting framework requires that companies correctly interpret the actions of the different public authorities (anticipation), adapt to this new reality, and develop a strategy of “diplomacy with impact”, to highlight to governments and parliaments good corporate practices on sustainability and their social impact, forging a new business model of investments with impact.
These two fields of action must operate in parallel with two processes: the training and/or updating of company CEO’s, with the aim of investments with impact being included in the business process, along with alliances with other “exemplary” companies to develop actions to promote, influence and spread the social impact of companies.
Synergies between digitalization and sustainability, how can I ensure the confidence of my stakeholders?
The greatest challenge facing companies in addressing their ESG projects is confidence. For example, greenwashing now accounts for 43% of all searches on climate change and greenwashing, which is a widespread trend in the main EU countries (Italy 21%, Germany 20%) and Latin America (Brazil 23%, Argentina 14% and Mexico 13%), and in Spain, although we are at a considerable distance from our European peers, we have gone from 3% of searches in 2019 to 10% in 2021, which shows signs of a growing perception of social mistrust in this field.
Against this backdrop, technology offers companies a host of possibilities:
(i) Through the analysis of large volumes of data through NLP and AI, we can understand the chatter in this field to identify the real concerns that activate people in this regard, along with the communities that host them, their opinion leaders and influencers that allow us to design strategies, action plans and communication that facilitate our ability to generate confidence and legitimacy with our communities.
(ii) Implement tools such as blockchain that allow us to provide critical processes in the impact of our company in the field of ESG chosen with the utmost transparency. For example, technologies including blockchain provide our storage processes with the utmost traceability, which ensure compliance with the actions communicated and committed to, and
(iii) Develop new communication interfaces (bots, voice,...) to pass on our messages in the preferred places and formats of our stakeholders.