The world has seen a rising consciousness of ESG over the previous few years, and Asia is not any exception. However, taking China for example, ESG disclosure will not be but obligatory for A-share listed corporations, nor has the native capital market established a typical analysis system. Still, many corporations in China have began creating their ESG methods and publishing such information and stories.
Despite the fast-growing reputation of ESG, a number of frequent misconceptions exist. The idea usually suffers from slim framing when individuals solely view it by means of the lens of funding, advertising, CSR, or environmental safety. To fight these misconceptions, manufacturers must do not forget that efficient ESG communications should be based on three core pillars: company objective, enterprise experience and each day practices.
Why is ESG communications essential?
ESG is the acronym for Environment, Social and Governance. Each of those three parts includes a number of standards that consider corporations’ environmental friendliness, social duty and company governance efficiency.
In addition to conventional monetary measurements, ESG is one other essential indicator of an organization’s long-term development potential. In this sense, ESG not solely provides a reference for buyers when making funding selections but in addition types a vital foundation for regulators and customers when assessing the compliance and values of corporations.
Over the previous few years, ESG packages have risen globally. In China, for instance, the nation’s rising consideration to ESG can hint again to 2018, when A-shares had been formally included within the MSCI Emerging Markets Index, as all listed corporations lined by the index are topic to ESG ratings1. In the identical 12 months, the China Securities Regulatory Commission revised the “Code of Corporate Governance for Listed Companies”, establishing a fundamental ESG data disclosure framework2. All of those have considerably pushed home consideration to ESG. By the tip of June 2021, the variety of A-share listed corporations that had printed ESG stories reached 1,112, up from 371 in 2019, in response to the White Paper on ESG Development of China’s Listed Companies3 printed final 12 months by the China Association for Public Companies and China Securities Index Co., Ltd.
Apart from the capital market, customers additionally connect elevated significance to ESG. In 2021, IBM surveyed greater than 14,000 adults from 9 international locations to know public notion of sustainability and social duty. Research4 exhibits that 84% of world customers take into account sustainability essential when selecting a model. Furthermore, 55% mentioned it is very or important, which marked a rise of twenty-two% over 2019.
Five frequent misconceptions round ESG communications
Misconception 1: ESG is all about disclosure and solely related to listed companies
The ESG stories issued by corporations, and the ESG rankings from monetary establishments are sometimes essentially the most intuitive methods for individuals to know one’s ESG efficiency. Then does this imply ESG is just related to buyers and listed corporations? This is a false impression we frequently see.
When we offer communications consultancy to purchasers, many SMEs usually say that they don’t have sufficient sources to do ESG stories. The logic behind it’s a misunderstanding that ESG merely equates to ESG disclosure. While the disclosure is undoubtedly obligatory, it is just the ultimate puzzle. ESG means extra. It includes a steady evaluation and enchancment of all three parts in each day operations.
In different phrases, corporations can execute ESG practices regardless of whether or not they do an ESG report about it. For instance, guaranteeing product security and high quality and defending worker rights are all thought of points corporations of any dimension should adjust to. These authorized obligations kind a vital a part of the ESG indicators. Meeting these authorized obligations marks the place to begin of 1’s ESG journey, which may additional prolong to all kinds of areas, resembling enticing worker welfare packages and improved power saving. These practices are generally seen and must be appropriately communicated, with or and not using a formal ESG report.
Furthermore, customers are more and more inclined to buy from corporations that align with their values. As model values are by no means established in a single day, corporations must act proper now to construct a reliable popularity in each facet of their operations. This once more exhibits that ESG practices, not ESG reporting, are important to corporations of any dimension.
Misconception 2: Marketing and creativity outweigh enterprise technique in ESG communications
Although many manufacturers perceive the significance of ESG, generally individuals merely use it as a way of picture constructing with out setting a holistic objective on the company stage. Once, a shopper items producer requested us to do a marketing campaign on environmental safety, and its transient included no different element than “please make our campaign creative, help people remember we pay close attention to ESG, ” thereby constructing a constructive picture for us”.
From our viewpoint, nevertheless, environmental safety initiatives will be as huge as a group-wide dedication in direction of carbon neutrality with concrete objectives, measurements and timeline or as small as holding a shopper merchandise recycling occasion. In designing such circumstances, one ought to first view these initiatives as an integral a part of its operations and align carefully with its general enterprise objective as a substitute of counting on incomplete advertising occasions to construct the picture. In this sense, occasion concepts and creativity are the ultimate steps within the decision-making chain.
Misconception 3: ESG is simply repackaging CSR
CSR, or Corporate Social Responsibility, has been practised for a protracted in all sectors. CSR and ESG initiatives purpose to advertise shared worth, which implies creating social worth for society whereas pursuing enterprise worth for the corporate. Unfortunately, the similarity of their objective has led to a typical false impression that ESG and CSR are the identical issues.
Strictly talking, CSR is, in reality, extra associated to the S (social) part of ESG, however individuals usually broadly generalize it and equate it with ESG as an entire. In most circumstances, getting too hung up on the wording is pointless, however one wants to know their important variations. That is, ESG requirements require way more quantitative measurements.
While CSR can qualitatively describe one’s general dedication to, say, utilizing extra clear power, ESG should articulate the agency’s detailed plan, resembling “we plan to reduce our operational carbon footprint by 70% within ten years, and to use 100% green power within three years”. Whether you name it CSR or ESG, the secret’s that one must be ready to evolve from a qualitative to a quantitative framework as a result of the latter lays the inspiration if such initiatives are to be systematically built-in with a enterprise.
Misconception 4: ESG is all about environmental safety
As the local weather disaster continues, governments worldwide have tightened environmental safety insurance policies in recent times to advertise inexperienced transformation. For occasion, China has mentioned its carbon emissions ought to peak by 2030 and decline to succeed in carbon neutrality by 2060. In this context, the E component has usually gained extra consideration than the opposite two parts.
The E component alone can’t assist sturdy ESG efficiency regardless of its significance. For instance, individuals are inclined to suppose new power manufacturers ought to have greater ESG scores below their environmentally pleasant merchandise, however this isn’t the case. An eye-catching instance is Tesla5. In 2019, MSCI downgraded Tesla’s ESG ranking from the subsequent highest AA to A, which it has maintained to date6, which is just on the “average” stage for the automotive business. The MSCI ranking dimensions7 present that Tesla leads in areas resembling “opportunities in clean tech” and “product carbon footprint”, however its poor efficiency in “product safety and quality” has lowered its general ranking.
In reality, for some sectors, dangers associated to the S component could also be extra extreme. The know-how sector is a typical instance. Although the tech business, typically, has a much less adverse affect on the surroundings than different sectors resembling petrochemical, its 996 work tradition – which derives the identify from tech companies’ requirement for workers to work from 9 am to 9 pm, six days per week – has precipitated widespread controversy. If one evaluates ESG on the E component alone, social duty and company governance neglect will trigger severe popularity dangers.
Misconception 5: It’s ample to assist the S component through easy actions
A clear definition of the S component is, before everything, a key problem for the ESG normal setting. Whereas “carbon footprint” below E will be measured by the proportion of electrical energy bought from renewable sources, and “board diversity” below G will be measured by the ratio of impartial administrators and feminine executives, points below S are sometimes too broad, making it tough to be measured exactly. From worker wellbeing and product high quality to extra basic social points resembling variety and inclusion, the S class appears to be a mixture of all the things. In Standard & Poor’s phrases, social components are “primarily those that will arise in the relations between a company and people or institutions outside of it8”, which, once more, may be very imprecise.
The broadness results in imprecise definitions, making measuring the S component difficult. Despite the rising significance of S, research9 by BNP Paribas in 2021 exhibits that 51% of the institutional buyers surveyed rated social components as essentially the most difficult to investigate and combine, up from 46% in 2019 and 41% in 2017, as information is tougher to return by. In addition, there’s a lack of standardization round social metrics.
Companies usually confuse what actions must be taken below the S component. Many offers with it in a simplified method, resembling by means of charitable donations or doing girls empowerment just by giving feminine workers a half-day off on International Women’s Day.
Three issues to bear in mind for efficient ESG communications
Setting ESG objectives on the company stage
First, corporations want to totally perceive that ESG is not only one thing good to have as a complementary perform that serves for picture constructing. Instead, ESG administration must be led from the highest, with the related points totally embedded within the firm’s general strategic planning.
Taking “consumer privacy and data security” for example, that is of great relevance to lodges as a result of they register a considerable amount of visitor data each day. Even so, many resort manufacturers haven’t but built-in this problem into their ESG technique to the identical extent as know-how manufacturers. This space is extremely specialised as a result of it includes information hierarchy classification, unstructured information dealing with, entry rights, and cyber safety regulation. As such, if a resort says it locations significance on data safety however has not included any know-how skilled in its ESG senior administration group or put concrete protecting measures in place, it leaves individuals questioning whether or not the resort can practise its assurance.
Setting ESG objectives on the company stage requires one to totally perceive stakeholders’ calls for and expectations, resembling governments, customers and buyers. On that foundation, they determine points which might be probably to have an effect on their enterprise. Secondly, it’s important to evaluate one’s ESG standing all through its complete worth chain, from product/service design and procurement to manufacturing and provide chain administration, to see the dangers and alternatives in every hyperlink. On prime of this, an organization wants to determine a scientific ESG administration framework that defines clear goals and milestones and maps out the execution course of. Finally, it units a timeline and measurements to make sure issues are carried ahead orderly.
Utilising one’s enterprise experience in ESG practices
Taking the S component for example, one essential joint initiative is poverty alleviation. The wants of deprived teams are multi-faceted; subsequently, one ought to attempt to deliver its power into play when offering assist to construct an efficient mechanism for the long run. For instance, F&B manufacturers can assist make higher kitchens or buy unsold agricultural merchandise. In distinction, banks can present extra inclusive loans, and insurers can create tailormade merchandise to stop poverty-stricken households from losses related to disasters and sicknesses.
A number one synthetic intelligence firm provides a superb instance of the way it has carefully mixed its enterprise experience with social worth by creating an AI + Mandarin APP. With the assistance of AI, the APP helps ethnic minorities in Yunnan, Sichuan, Qinghai and Gansu provinces grasp Mandarin abilities, facilitating their each day communications in work and life and finally bringing extra alternatives to them.
Putting phrases into motion in each day operations
As the previous saying goes, “actions speak louder than words”. Recently, a famend shopper model confirmed a basic instance of the best way to keep away from it. The model has a “gender equality” part on its web site, stating that “research shows 40% of women believe they are misrepresented through some form of stereotype or bias. As one of the world’s biggest advertisers, we recognize the need to use our brands as a force for good - raising awareness of and sparking conversation around topics including gender bias and driving for an equal world”.
This sounds nice, however what about its motion? Earlier this 12 months, the model printed a “popular science” article on its WeChat channel to advertise its hair and skincare merchandise. The article instantly precipitated outrage as a result of it says, amongst different issues, that “women’s hair is twice as dirty as men’s”. Unsurprisingly, publicity will backfire if phrases aren’t put into motion.
Again, whereas ESG communications fluctuate amongst totally different companies and industries, its essence all the time boils down to those three pillars – company objective, enterprise experience, and each day practices. All angles and artistic concepts have to be based on this foundation. Only on this approach can one’s ESG efforts create a pure, lasting affect.
Olivia Cao is the top of media content material at Mars Communications.