Where should your focus be on ESG?

Protecting and building business reputation has always been a core focus for Boards and executive management. It’s also an area that has recently become much more complex, given the intense public focus on Environmental, Social and Governance (ESG) factors.  

Mounting evidence that consumers are willing to take action against perceived “ESG recalcitrants” is driving activist investor pressure, so it’s not surprising that businesses in Australia and the United Kingdom are working hard to respond. Their response has been effective to the point where business is now generally viewed by the public as outperforming national governments – who are struggling to balance the trade-offs of a ‘just transition’ against the backdrop of increasingly polarised electorates.  

The importance of the environment and sustainability 

ESG is such a broad term that it is exceedingly difficult for Boards and CEOs to navigate which areas require prioritisation and how to focus their response. However, recent research conducted by SEC Newgate of consumer attitudes on ESG in 10 international markets provides some interesting insights to what underpins the community attitudes; how they can be meaningfully addressed and even some hints as to how they might evolve. 

At present, it is the “E” (environmental) segment of the equation that is rated as by far the highest priority by Australian and British consumers, followed by “G” (governance). “S” (social) issues – like diversity and labour practices, currently make up a surprisingly small proportion of mentions – less than 15% – in both the United Kingdom and Australia, a somewhat surprising finding given the active ongoing public discussion of these issues – and the strong investor and corporate focus on performance in this area.  

The importance of tangible action  

Business leaders wondering where to start would do well to take a sharp focus on environment and sustainability and be prepared to make adjustments that will deliver meaningfully improved performance. There is very little residual patience for tokenism. In addition to high consumer expectations, regulators like ASIC are actively warning that they are watching out for “greenwashing” behaviour and will act against it. In other words, a net zero commitment must be backed by a measurable plan of action. 

Advanced analytics of UK-Australian consumer survey data highlights an interesting difference between what will really move the environmental reputation dial for companies in the two countries. In Britain, “genuinely working towards being carbon neutral” will have a significant positive impact for business reputation. Australians, on the other hand, seem to respond more favourably to companies focusing more directly within their supply chains to “use natural resources more responsibly and sustainably”.  

Communication is key 

Better communication around ESG is a priority in both markets – as it is around the world. Consumers want to see more transparent reporting of ESG performance, allowing more genuine comparison of progress. Australians and British consumers were among those most stridently calling for ESG claims to be more adequately regulated. It appears they are prepared to reward clear messaging around sustainability performance, with leading supermarket retailers being most frequently cited as “doing well on ESG” in both Australia and the UK – boosted by strong sustainability marketing and in-store engagement campaigns.  

How might this evolve?  

So where is all this heading? The themes captured by the umbrella term “ESG” are clearly ingrained as a priority for consumers around the world. There is strong consistency of the research findings across global markets, indicating that consumers expect companies to do more to give back to their communities and the natural environment. It was fascinating to note that 60% of Australian and British consumers now agree with the proposition that “ESG considerations should be more important to business than profitability.” Although this view was slightly softer than the global average (65%), it is still a clear majority agreement with a proposition that would have been viewed as quite radical not so long ago.  

While it’s difficult to predict how these attitudes might evolve, I believe we can reasonably expect to see an increase in the focus on “Social” and “Governance” issues, as expectations readjust following the disruption of the pandemic and as environmental issues are progressively addressed. Serious scrutiny of business performance, and particularly of their treatment of employees – in the manner of that just seen for Anglo-Aussie miner Rio Tinto – can be expected to continue.  

Community attitudes and what underpins them are complex. Businesses wanting to respond effectively must avoid being driven by the latest squeaky-wheeled fad. Instead, those who will be the most successful will have listened very closely to their customers and communities to understand what they really expect of them and analysed the data to identify which actions will have the most impact and cut-through. They will then have kept their response tightly focused and prioritised, to deliver first on those areas that really make a difference. 

Click here to read SEC Newgate’s full ESG report findings – link

For a conversation about your organisation’s ESG response, contact [email protected]. 

Related services – Find out more:

Environmental, Social & Governance Advisory (ESG)

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