In today's corporate landscape, Environmental, Social, and Governance ("ESG") considerations have evolved from buzzwords into business imperatives. Despite increasing clarity on their importance, the challenge for companies remains: what are they actually required to do to effectively respond to ESG, and how should they be advised to go about this? As part of the Leeds Digital Festival 2023, DWF hosted a dynamic panel discussion to explore this challenge.
The conversation covered a wide range of issues, from the importance of creating an inclusive working culture and instilling strong governance frameworks from day one, to the need for strong minority representation in the investment process. However it was no surprise that much of the discussion focussed on the environmental side of ESG, given the timing in the context of the UK Government's roll back on key green targets. There was consensus in the room that the recent approval of the Rosebank oilfield and delaying a ban on new petrol-only vehicles is clearly at odds with the sentiment within the business community that demonstrating environmentally responsible behaviour is vital for all.
As climate change accelerates and consumers demand more eco-conscious products and practices, companies must adapt to remain competitive. Addressing ESG challenges is no longer optional, but a strategic necessity. So whilst new technologies such as ChatGPT are revolutionising how we communicate, few people realise the impact they are having on the environment given the amount of processing power required for them to operate.
Globally, the tech sector contributes between 2% and 4% of greenhouse gas emissions, and AI (including ChatGPT) will contribute to part of that. The amount attributatable to ChatGPT is not easy to quantify, and as it is a newer technology, this figure is likely small currently, but, with 590 million visits to ChatGPT in January 2023 alone, it is safe to assume that this figure will increase. Companies are therefore having to work smarter to address this; tech companies for example are in a race to use better and smarter code – can they write one line where it used to take three?
The narrative from companies that prioritise ESG is that these concerns matter, not just now but for future generations. But for those companies who are not yet convinced of that mindset, why should a focus on ESG really matter?
Investors are becoming increasingly savvy about where they invest – and in turn founders are asking where investors' funds are coming from. A mature and considered approach to ESG is proving to have a positive impact on the price paid by an investor or a buyer. A recent survey conducted by KPMG in the US suggested that more than 60% of respondents would pay a premium for companies demonstrating a high level of ESG maturity, or which aligned with their own ESG values.
Conversely, the lack of such ESG maturity, or meaningful policies, can lead to a price reduction, or cause a deal to fall over altogether. When pitching for public sector or bank panel work, as much as 20% of the overall score of a pitch can be attributed to ESG credentials. This is not something that can be ignored entirely any more. A quote from KPMG in that same survey said that "as the world continues to evolve, so do the expectations… sustainable practices are no longer just a choice but a pre-requisite for resilience and growth".
This isn't to say that this isn't challenging; the benefits of incorporating ESG into your company's or business' operations seem obvious, both financially, and morally. But, what are the challenges? How can companies, especially small start ups, develop an ESG strategy that works for them? When funds may be at a premium, and there are competing demands for them, how does a company prioritise? There is still a limit to how much robust and consistent ESG data existis, and findings are hard to quantify which means there can be a lack of understanding of ESG amongst stakeholders (or simply, the subject matter is so wide that it means something slightly different to everyone). Therefore justifying the return on ESG spend in preference to, say, marketing or product development may be hard.
There is a 'simple' answer though: at its heart ESG is about culture. Increasingly companies are being set up with the basic principles that are encapsulated by ESG at their core - rather than a decision to be ESG "compliant", requiring specific actions and expenditure. Responsible business culture can flow through every decision that is taken, whether that is hiring policies or whether or not there should be single use plastics in offices. For smaller entities, if a specific definable approach is desirable, landing on three or four specific areas where their business can make a tangible impact might be a good starting point. Signing up to the Tech Talent Charter, and looking at the B Corp principles (whether or not accreditation is sought) are other things to consider if looking to take additional steps.
ESG is not a checklist; it's about taking an integrated approach to ensuring that a business has a positive impact. On a wider scale, there needs to be a greater understanding that ESG, and ESG initiatives, are interconnected with issues outside of the immediate influence of the company, such as the cost of living crisis, and that by adopting a more ambitious, and holistic approach, government and companies can be a catalyst for positive change.
The pursuit of ESG excellence, particularly in environmental matters, is not just a moral imperative; it's a strategy for long-term value creation. Sustainable practices can lead to cost savings, reduced risk exposure, and enhanced brand reputation, making companies more resilient in a changing world.
Identifying and delivering on their ESG priorities is a journey that companies cannot afford to ignore. Leadership in this realm involves a holistic commitment to sustainability, innovation, transparency, and stakeholder engagement. By embracing ESG as a strategic imperative, companies can not only thrive in today's business landscape but also contribute to a more sustainable and prosperous future for all.
We would like to thank Anna Sutton, Reema Vadoliya, Mike Clarke and compere Bernard Ginns for their contribution to the session.
