IMPORTANCE OF A ROBUST ESG STRATEGY

An Environmental, Social and Governance strategy is now business-critical with investment, contracts and recruitment becoming increasingly linked to a firm’s sustainability score

Developing an Environmental, Social and Governance (ESG) strategy is rapidly moving to the top of the corporate agenda, even in an era of turbulent economic times, as organisations gain an appreciation of its value when it comes to winning new business, investment and recruiting staff.

The Business Magazine, in partnership with Redwood Technologies Group, hosted a roundtable at East Hampstead Park in Wokingham to discuss how an ESG strategy can be fostered within organisations large and small. The wide-ranging discussion covered its importance in the current business landscape, pressure points and challenges.

What is ESG and why is it important?

Defining what ESG means is a crucial first step as it sets the scope for how deep that sustainability-driven change will run in the business.

Sean Taylor, CEO of Redwood Technologies Group which owns cloud contact centre solutions provider Content Guru, said setting up committees around ESG and diversity had been pivotal in driving forward strategy.

He said: “With ESG, you are mashing together three separate areas and there is a lot of work to do on strategy to end up with something coherent and productive.

“Getting to net zero is a big driver for us, and we have a long tradition on the social and governance sides due to the nature of our business, which involves keeping sensitive data safe from cyber-attacks.

“We have spent time setting up committees to define the value of ESG to the business. This doesn’t necessarily relate to profit, but we have found value in activities such as going into local schools to promote engineering to young women. There is business value, and most importantly value for the community, within this type of initiative.”

Sarah Atkinson, Director of Environmental, Social & Governance at enterprise software firm Micro Focus, said a clear strategy was vital for objectives to filter through the organisation.

“A company’s ESG strategy has to be authentic and genuine, she said.

“It must be embraced by the leadership team and CEO. There has to be a golden thread achieved by a clear vision and strategy accompanied by education and awareness among employees so they understand what you are trying to achieve and why.”

The first steps of any strategy are pivotal in defining its future success and this is especially true with ESG, with the future prospects of organisations resting on having a robust approach.

Mark Wood, Chief Operating Officer of sustainable aviation pioneers Reaction Engines, said that creating a white paper to get buy-in from the top down was an impactful first step.

He said: “We created a white paper from all the pieces of information we had collected and then we took that to our Executive Leadership Team (ELT) and board to get buy-in.

“The ELT recognised that it was good for business, good for our people and aligned with our values.

“We created a scorecard which focused on three areas. It looked at where we are investing our money and if we are investing in sustainable technologies that are going to enable people. We also included diversity and how we are reaching out within our local community from the ELT down.”

The value of sharing ESG advice

For companies starting out on their ESG journey, the road ahead can be daunting with a plethora of acronyms and reporting legislation to contend with.

MoA Technology based at The Oxford Science Park was established five years ago and specialises in crop protection.

MoA’s Office Operations Manager Tracy Bell, said that her company would benefit from a local ESG support network.

She said: “We are still very early in the process and gleaning bits of information from companies we meet. We would greatly benefit from a support network of companies and organisations we could discuss ideas with.

“We don’t own the building we operate from and have no control over its heating or electricity so we are looking at alternative ways to impact our ESG score.

“We are looking at how we purchase equipment and what the company that supplies it has done to meet their ESG requirements. We also recycle a lot of our equipment and waste where we can.

“On the social side we have been at The Oxford Science Park for a year and a half and worked with the science park last year to do a collection for The Trussell Trust.”

On the other side of the scale, Hitachi is a global organisation that employs 350,000 staff around the world and faces the challenge of developing a strategy across continents.

James Stevenson, UK Head of Market Development – ZeroCarbon Fleet at Hitachi, said Hitachi’s ESG strategy is informed by the UK ZeroCarbon team, however challenges remain in implementing a universal strategy across multiple business units.

He said: “Due to its global scale, Hitachi has a significant carbon footprint, our approach to ESG is both top-down and bottom-up. Our leadership has redefined the mission, social innovation is at the heart of our company and our transition to net zero.

“In terms of making a difference on the ground, it is challenging due to our scale, and the high degree of autonomy each business unit has. Hitachi has focused on sharing best practice – in the UK our expertise in electric vehicles has informed European operations and now the rest of the world. We are also helping our suppliers improve their operations, which in turn addresses our scope 3 emissions.

“Scale can make the ESG transition easier, but collaboration is important especially in a conglomerate. We are working very hard to make sure that communication and innovation change is happening in a meaningful way.”

Full disclosure of sustainability information

Expanded reporting under Task Force on Climate-Related Financial Disclosures (TCFD) came into force in April. Now companies with 500 employees and £500 million turnover have an obligation to provide sustainability information annually.

Sarah Atkinson said Micro Focus will make its first disclosure in February.

She said: “We established a new governance framework two years ago and set up a board-level committee which has oversight of ESG along with a working group made up of different heads across the organisation.

“We also have an environmental sub group that spends a lot of time looking at the operational side of what we are trying to do in terms of reducing our environmental impact.”

Fran Boorman, founder of Goal 17, is developing a technology platform that will link companies with mentoring opportunities and also allow them to track their sustainability activities.

Fran said an inequality gap was emerging between large and small firms when it came to reporting.

“Reporting can create inequality as large businesses have the resources but small businesses do not,” she said.

“My technology is helping small companies compete as they don’t have consultants or departments to deal with this.”

Technology is key to helping companies reach their sustainability goals, however it must be sensitive to the societal and economic circumstances in which it is deployed.

This point was flagged up by Dan Williams, CEO of measurable.energy, who pointed to email as a prime example, with its initial positive sustainability impact outdone by spam.

He said: “Take email as a simplistic example which got rid of letters. This means we reduced paper consumption, which is good, but then spam email was discovered.

“Energy consumption around email went through the roof and got rid of any benefit from removing paper.

“We should always consider the rebound impact as there will always be things that will be hard to foresee or predict. You have to plan and consider the best – and worst-case scenarios across the full lifecycle of a technology.”

Redwood Technologies’ Sean Taylor pointed to the need for a systems solution when it came to technology, with carbon offsetting in the airline industry enabling multinational firms to keep functioning.

“Necessity is the mother of invention, he said.

“A big concern for us is travel as we do business in 50 countries and if we did it as Zoom it wouldn’t be as good.

“If the airline industry collaborates and solves the problem with fuel emissions then it gives flying a score of 0.

“The systems have to fit together as we just can’t stop doing things. We can’t conduct business as efficiently if we don’t travel, so let’s change the premise.”

With a recession looming, investor pressure for companies on ESG disclosure remains.

But the focus on profitability and survival is particularly poignant for companies battling inflation and rising supply chain costs.

Rowan Grobler, Investment Director at Gresham House Ventures, said companies needed to adopt a strategic approach to ESG and should strive to make positive incremental steps.

He said: “Business staying in business is important. If they go out of business then there is no ESG. Businesses still need to operate.

“They may have to halt some of the projects they are working on and focus on one or two of the key aspects of ESG.

“What we see now is grassroots businesses that are looking at ESG and they are building business based on measuring what they are doing.

“They are not choosing the whole breadth of ESG, they are choosing one of ‘E’, ‘S’ or the ‘G’ and trying to measure it and growing from there.”

People are a company’s key asset and core to their organisation shifting to a sustainable path. However change of any description can often be met with opposition.

How to get your employees on board with ESG

What are the best approaches to encouraging staff buy-in?

Fran Boorman said that employees had to feel emotionally connected with their company’s ESG agenda and one way to achieve this was community mentoring.

She said: “If you look at the companies going through growth they are the ones getting their people engaged with this.

“You have to educate and bring your people along with you because if you don’t then they will not stay or be motivated to drive forward with you. People have to feel emotionally connected with the activity that they are doing, and the agenda.”

Fran pointed to a collaboration with a national construction firm which trained staff as mentors in Southampton and helped 10 homeless people into permanent accommodation and employment.

The scheme helped the company win multimillion-pound contracts by increasing the ‘S’ part of their ESG score.

She said: “The construction firm worked with us not just so they could win contracts but they wanted to create social value and it was the right thing to do.

“Our programme with the Saints Foundation saw us use sport as a vehicle and meant that their managers could see the impact that the work was having on the community.”

The Berkshire Community Foundation (BCF) matches companies with charities and in many cases carries out the logistics of their philanthropy.

BCF CEO Jon Yates said community action by companies provided a boost to staff morale alongside wider business benefits and that if businesses work collaboratively then the overall benefit to the community is multiplied.

He said: “Businesses are aware that recruitment is important and having an ESG strategy is a key way of inspiring people to join your organisation.

“Young people will join their business if they see them acting in a socially responsible way.

“There is also a bottom-line impact for business by being socially responsible and putting resources back into the local community where their staff live, work and play – and where their customers are based too.

“By doing this they are generating a lot of goodwill internally and externally. Staff also get a spring in their step because their organisation actually gives a damn.”

Building a diverse workforce improves business capability

Building a diverse workforce can improve the capability of a business. However, it’s not without its challenges.

Building a positive sustainability public image is important, according to Reactoin Engine’s Mark Wood, who argues that this can only be done by careful communications, including job advertisements.

“People are at the heart of everything we do. It is critical for our business that we have diversity in how we do things which helps with problem-solving and creative solutions, which is just so powerful.

“We looked at job adverts which were very technically focused and biased towards males. Amongst other activities, we now screen every advert to make sure they are not biased.”

Good ESG credentials can improve business prospects

Having good ESG credentials affects the very fabric on which business is conducted, with an acceptable ESG score impacting the terms on which a company can gain insurance cover.

Gayle Bennouir, Risk Management Director at insurance broker VERLINGUE, said making sure ESG data was recorded and available publicly would help with applications across multiple industries, including insurance.

She said: “If your company is impacting negatively then it is important to consider what you are doing to reduce that risk and how you are positively impacting society.

“Signing up with a public ratings agency such as EcoVadis allows you to share what you are doing on their platform This means you have it documented and can prove it.”

Sustainability concerns are also having a deep effect on our built landscape with the design of buildings expected to rapidly change in the years ahead.

Alicia de Haldevang, Sustainability Principal Consultant at engineering and design consulting firm Stantec, said that the challenge with creating future city landscapes was making sure that they were future-proof for the climate challenges ahead.

She said: “We have seen a lot of changes thanks to Covid and from people working from home in terms of what people need from their own space.

“We have extreme weather events which linked to climate change, will be more frequent, and we are having to think about what people need from their spaces.

“In terms of a sustainability view, when looking at a development, it’s about linking the ‘E’ and ‘S’ through nature-based solutions, to provide aesthetic and functional solutions that can enhance health and biodiversity at the same time.

“What I would like to see in the future is more solar shading measures, through drought-resistant trees, and green corridors to deal with the impacts of climate change.

“We also need to consider retrofitting our buildings as 80 per cent of them will still be here in 2050.

“Also changes in transport mode, how we use our spaces as multi-functional places, such as our streets, and consider whether we have to build new buildings or infrastructure in the first place.”