ESG has been around for over a decade and it turned into and important aspect of doing business. Most investors care about a company’s approach to environmental and social sustainability as well as governance issues. As a side spring this rating business emerged that basically uses a framework to assess companies and portfolios against and assign an ESG score. We can argue about the initial intensions and the outcomes (potential for greenwashing and social washing), but it almost doesn’t matter. What does matter is that investment decisions are made based on this rating or compatibility with the applicable ESG Framework. For better or worse, any M&A due diligence now includes a look at the sustainability aspects of the business. I wrote about the EU’s new CSRD that basically requires large companies to undertake environmental and human rights due diligence in their supply chain.
Recently I had a few deals where the limitations of the financing instrument made us rely heavily on sustainability reports, ESG rating reports and other publicly disclosed information. For those of us working in the safeguarding business or E&S performance management, this is challenging because typically we rely on asset level management plans or project level impact assessments when appraising a project. This allows for a very detailed look at how each aspect of E&S – even the ones not overlapping with ESG – are assessed and managed by the company. It might feel intrusive to finds and companies with a large asset portfolio who are new to IFI financing. For us E&S safeguards and performance practitioners, this is just another day in the office.
These projects and the lack of ‘useful’ information made me think about ways in which we can make ESG more meaningful – from a social performance practitioner’s view. I’d welcome the start of a conversation around the topic from people with different backgrounds.
Here it is:
ESG should incorporate asset or project level data to provide a more holistic view.
It might be too much to disclose, but abbreviated data or an indication that any project or asset that is owned or managed by the company follows the corporate guidelines would be helpful.
Comment on asset and project level management systems and evaluate the implementation
How many times have we heard that something is managed in line with national legislation? We know very well that even in the most exceptional cases, there can be gaps between international best practice and national legislation. Even when the gap is small, there is still the issue of implementation. What I want to see for instance is that every asset has a management system in line with ISO 14001 as an example. This provides an indication to me that you care how your assets are managed. Statistics on accidents could be provided on corporate and on asset level (or grouped into regions or country level – whatever makes sense for the portfolio)
Separate legal/mandatory requirements from ‘going the extra mile’.
This is especially true for the social aspects of ESG where companies mainly report on diversity, inclusion, equality and engagement with ‘communities’ and stakeholders. Non-discrimination and equal opportunities policies are not in the ‘extra mile’ category, because they are statutory requirements in most developed countries. This might be unpopular opinion but women in the leadership and paternity leave for men are compliance related activities, not additional. An informative ESG report would have a section where it demonstrates compliance with applicable legislation and another section where it showcases additional activities that go beyond the compliance element.
Better definitions of what is within the scope – especially on the social aspects
Who are the communities? Communities around the corporate HQ or around the main manufacturing facilities abroad? Who are the employees? HQ based employees or workers in other assets and facilities? What information is disclosed to shareholders? Are you reporting on E&S non-compliances to your board? While some of this information might not be fit for public disclosure in detail, a high level overview and clear scope of communication could be included.
These are just a few ideas to make the reporting more informative.
Comments