Author: Chris Bowden, managing director of Squeaky
Environmental, social and governance (ESG) policies and the way in which organisations approach them has undoubtedly evolved in recent years. More and more people – particularly the younger generation – have demanded that capitalism serves employees, customers, and the environment. This, in addition to the existing expectation of shareholders, has meant that ESG is now at the forefront of many boardroom agendas – and rightly so.
In this Q&A, we speak to Chris Bowden, MD of Squeaky (the B2B marketplace for clean energy) about the real need for delivering on ESG commitments and how the c-suite is committing to positive change. We talk about why investors are holding companies to account regarding ESG commitments, what barriers there are for businesses considering more sustainable operations and strategies and debunk some of the myths around ESG.
Q: Chris, why should businesses be prioritising ESG?
CB: In short because it is good for the planet and our people. But also, because it makes good business sense. After all, an ESG focus can help a company reduce its capital costs and improve its valuation.
So, as well as it being the ethical and moral thing to do, it’s clear that prioritising ESG is actually good for business too. There is an overwhelming weight of accumulated research which has found that companies who pay attention to ESG concerns increase the potential for value creation in respect to top-line growth, cost reductions, reduced regulatory and legal interventions, employee productivity uplift and investment, and asset optimisation (McKinsey).
Q: So, is everyone taking ESG seriously now then?
CB: We’re getting there. Whilst many executive leaders now take ESG seriously in their decision making, many are still managing conflict with board members who are blinkered by the lure of short-term results and are bound to the belief that companies who focus on ESG issues experience a drag on value creation. Worryingly, PWC’s 2020 Annual Corporate Directors Survey found that only 38% of board members think ESG issues have a financial impact on a company.
Q: What impact do you think the shift from shareholder primacy to stakeholder capitalism is having on businesses in general?
CB: The reform of capitalism, and the drive to make companies more sustainable, inclusive, and socially responsible, has become a powerful movement. Consumers, employees, and investors have the power to hold companies to account regarding their ESG commitments. For instance, investors have been divesting fossil fuel focused companies, employees have left organisations who have failed to take a stand on diversity, and customers have avoided buying products from companies with dubious supply chains. In short, you can’t afford to not take this seriously.
Q: What do you think are the most common myths associated with ESG?
CB: Certainly, one of the biggest misconceptions out there is the belief that a mission or purpose that embeds ESG commitments costs more. But prioritising ESG doesn’t have to cost the earth – indeed robust actions and transparent behaviours can be adopted with little cost, and yet the value add can be exponential.
The other myth is that it creates a drag on value creation. However, research shows that a strong ESG proposition correlates with higher equity returns from both a tilt and momentum perspective. Better performance in ESG also corresponds with a reduction in downside risk, as evidenced, among other ways, by lower loan and credit default swap spreads and higher credit ratings.
Q: From a leadership perspective, what should C-suite execs be doing to approach ESG in the right way?
CB: C-suite executives need to avoid token programmes and obscure or unclear claims which can erode the public’s trust and invite backlash against the company and its executives. In my opinion, too many companies have embraced a “box-ticking” culture that encourages the adoption of increasingly standardised ESG activities. For instance, companies may publish their diversity policy, but decline to release the actual makeup of their workforce. Or they report on their workforce, but not the pay disparity between groups. In my world (renewable energy), what we’re seeing is c-suite executives making unrealistic and somewhat outlandish net zero pledges. So instead of taking action right now, they are committing to promises that someone else will have to deliver down the line. This creates a poisoned chalice for future leaders and is neither helpful, nor ethical.
Q: What kind of change management processes specifically are required to get businesses to address sustainability more effectively?
CB: Organisations should publicly report on their social and environmental impact with clear, standardised, and easy-to-understand metrics. Companies who are serious about becoming more sustainable, inclusive, and socially responsible must consider ways to embed these objectives into the very fabric of their organisation and start initiating behavioural change (all the way through the organisation). Most successful companies have a mission statement and a purpose, so one way to start would be to consider whether these statements align with their ESG goals. Another route – which we’ve actioned at Squeaky – is to become a B-Corp. Whatever the case though, the key here is to take action, and not just make pledges and hope someone else can deliver on them in the years to come.
About: Chris Bowden is the MD of Squeaky. Squeaky is the B2B marketplace for clean energy. Squeaky enables corporate and public sector organisations to buy clean electricity directly from wind, solar and hydro generators in an efficient, cost-effective way using a unique combination of expertise, software and contracts.