A few years ago, Environmental, Social and Governance, or ESG, was a trendy hipster investment term; today it is no longer trendy – it’s a corporate necessity. Yet, even though ESG reporting is now commonplace, and required in many jurisdictions, for many people the term is interchangeable with environmental factors, with the social and governance factors tending to get left out.
In short, there is too much ‘E’ and too little ‘S’ and ‘G” in retail investors’ thinking about ESG investments. At this year’s PRovoke Asia-Pacific Summit, I joined a panel session on the Future of ESG, the three letters were very much together, with E, S and G getting equal prominence.
ESG has become a key strategy for connecting with a company’s stakeholders, but communications have to be transparent and based on trust to be effective. C-level executives have become increasingly interested in ESG. In APAC, it started mostly in Australia, Hong Kong and Singapore, but lately executives in Japan, Korea and China have also taken a greater interest. Our recent The Future of Asset Management in China 2021 report showed that a combined 95% of Chinese investors think that strong ESG product offerings are “very important” or “somewhat important” for overseas asset managers operating in China. C-level executives’ interest initially focused on ESG reporting but has now gone beyond that to become a key strategy for connecting with all of a company’s stakeholders. As well, companies are using their ESG-linked products to differentiate themselves from their competitors to show social commitment even at capital financing.
From the media relations standpoint, reporters now have a deeper knowledge of ESG issues and are covering the issue in greater detail. They are interested in understanding the risk and challenges companies are facing and how they adopt different practices to address the ever-changing standards and requirements.
Trust and transparency are key to enhance companies’ reputation in ESG and companies need to step up their external and internal communications to show that they have a strong commitment to ESG values. Companies should take every opportunity to communicate their ESG efforts. When announcing quarterly results, companies will always get questions about ESG, so it’s best to take the opportunity to update the progress proactively. Even in town hall meetings and all-hands calls, it is important for the management to share the companies’ progress in ESG and cascade the importance among internal employees.
Investors, employees, regulators and other stakeholders are increasingly concerned about ESG issues. Companies need to be conscious of all three factors – Environment, Social, and Governance – and communicate clearly, transparently, and regularly to maximize value from their ESG actions.