ESG or Everybody Shams Generously?

A survey (Nov. ’21) shows that there is a massive trust issue with companies ESG statements and commitments. Read on….

Daniel Koeppel Photo

By Daniel Koeppel

A global event in the capital of Scotland was recently concluded.

The majority of the participants of said global event are paid much; therefor much is expected from them. Does it matter that that the majority of participants were reportedly employed to lobby for the fossil fuel industry?

I for one am convinced that their moral compass is as steady as the North Star – NOT!

Enter a recent survey by Edelman Financial.

Edelman Financial surveyed 700 institutional investors, including financial analysts, chief investment officers and portfolio managers across the U.S., Canada, U.K., Germany, the Netherlands, the Middle East and Japan.

One of the key findings of the report, Edelman disseminated on the findings from the U.S. findings from the survey, was a lack of trust by investors into companies’ ESG commitments and reporting.

Specifically the report states:

  • 86% of respondents in the survey reported that they believe companies frequently overstate or exaggerate their ESG progress when disclosing results.
  • 72% of respondents said that they don’t believe companies will meet their ESG commitments.
  • 94% of investors reported that they expect companies to communicate a net zero plan.
  • 92% respondents expressed concern that companies are not effectively executing on these commitments.

 

“Investor priorities and expectations are changing rapidly and companies that do not keep up will struggle to win trust. Our research reveals that investors do not trust company ESG disclosures and do not trust companies to deliver on ESG promises. At the same time, investors now see employee activism as a sign of a healthy corporate culture. These are disruptive forces across the investment community that corporate boards and leaders must embrace to ensure competitive cost of capital and fair valuations.”

Lex Suvanto, CEO of Edelman Financial

Some subjective reasons why this sad ESG situation persists and what to do about it – extended version
Top down problem
  • A company decides on applying ESG considerations while still following on the basic business paradigm of externalization and short term margins. Aka.: “why bother, there is no accountability required”
  • A company just follows the “blah blah blah” of its established industry leaders. Aka.: “Me too syndrome”
  • A company engages in ESG reporting due to peer pressure, not due to having an actual “vision on sustainability” Aka.: “Having sight, but no vision”
  • A company engages in ESG reporting without having the proper know how or data or necessary processes or all of the above. Aka.: “Self delusion”
  • A company is forced due the legal requirements to report on ESG. Aka.: “ if a government moves faster than a company, it’s clear the captain is asleep on the wheel”.
Top down solution suggestion
  • Educate the leaders (and preferably those that are actively engaged with ESG, too.
  • After a basic ESG education, execute a survey at a minimum and possible a democratic vote on how to go continue on this topic.
  • If after the topic relevant education top management is not pushing for ESG by themselves, fire them, or if not possible, look for a new job.
  • Start dialogue with associations, like-minded competitors, universities or similar.
  • See point 1 – 4.

 

Bottom up problem
  • A company (in very rare cases) made an internal survey and learned that more than 2/3 of its employees want to see more ‘meaning” in their jobs. An even higher number of employees are straight scared out of their mind because they realize “we are f*$#ed”, if we don’t change the ways we do business. But of course the employees are ignored. Aka.: “if it ain’t broken why fix it?”
  • A company has in fact started with ESG and does involve selected employees. There is however an absence of relevant benchmark data for anyone to come up or follow an achievable strategy. Aka.: “All are in a dark room looking for the light-switch”
  • A company engages in ESG reporting relying on long term employees know how to cover ESG aspects and improve them. Aka.: “Finding solutions for complex problems with the same thinking that brought us here is going to be effective.”
  • A company has started with ESG utilizing selected mid level managers. Regularly shared results and data are like the construction of the tower to Babel (Bible, Genesis 11 ff) aka.: the absence of relevance or understanding can make ESG die a quick death.
  • A company has started with ESG utilizing selected mid level managers. Regularly shared results and data are the source of much confusion, consternation and loss of face. Aka.: the right hand does not know what the left hand is doing. the owners of specific process tasks are not involved, consulted nor has the objective been explained to them

 

Bottom up solution suggestion
  • A company empowers a selection of the most sustainably aware and motivated employees and task them with organizing & collecting ESG related data and implement them into the existing processes.
  • Trade, buy, beg, steal those benchmark data.
  • Educate the leaders (and preferably those that are actively engaged with ESG, too.)
  • Communicate – Communicate – Communicate (the why, by whom and also how to EVERYBODY!)
  • Include and engage the owners of specific process tasks by explaining the problems, the benchmark and the objectives to them.
 
For transparency; the source of original report: https://www.esgtoday.com/edelman-survey-investors-dont-trust-company-disclosures-or-commitments/;accessed 18/11/2021

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