ESG - Why all the fuss?

ESG – Why the fuss?

This is a must-read for every businessman, CEO, CFO, and Director. In this blog, we cut to the chase and heart of the problem and provide practical steps to start, re-start or improve your ESG journey.

Setting the scene

Adopting ESG – Environment, Social and Governance principles by businesses are all the rage. Every listed Company is obligated to comply, and you have a new category of the person employed in organised called Head of ESG. However, the evolution of ESG today, which is based on the UN SDG principles, is like the wild west. Even the debate around Climate Change and the road to lower emissions to 1.5c is pathed with potholes. Every public company today has a sustainability report, and this is a key feature of the Financial Report. ESG principles and legislation are being introduced to stop greenwashing and increase accountability. In this Blog, I will set out some key issues and practical steps through my initiative to upgrade ESG, providing ESG innovation, providers and resources.

When I talk about ESG with people from the Business world, and even in successful Real Estate groups, either they are not into it and do not see it relevant or have yet to embrace it fully. Just take this example: I chatted with the general counsel for a quite large Real Estate player with strip malls across America. I asked him whether they do ESG in the organisation – while not quite sure what ESG is, I then used the word sustainability and then replied – Oh, you mean Green Build and added not really.

So, at this stage of the ESG Journey, you have Companies that have either embraced the ESG story or at least the Environment part of it or Companies that do see it relevant yet or at all. After all, profit is still the benchmark. The questions to ask - Why is ESG an important need to fight Global warming? Why are the social and governance angles less important? Is ESG a risk or opportunity? Is it a cost, or can it lead to more profit?

So, let’s look at some of the issues:

1. The Big Hitters include Petrol, Mining & Industrial Conglomerates. These companies extract and exploit precious raw materials and have tremendous environmental damage – Next up are Real Estate, Transport and Food industries. This is where ESG is needed the most. Businesses have been urged to abandon their reliance on fossil fuels after some of the world’s best-known brands were named and shamed in a list of this year’s top plastic polluters. The Coca-Cola Company, PepsiCo and Nestlé have been named as the companies with the worst waste records in a new report by environmental campaigners Break Free from Plastic (BFFP), with thousands of plastic items discovered across dozens of countries in 2020.

It is no surprise that big Hitters have embraced ESG – I encourage you to google any of these, and you will see a page focused only on sustainability on the website.

Let’s look at https://www.adm.com/.

AMD is a very large food conglomerate that, in the past has come under considerable criticism for environmental abuse. They have fully embraced the ESG story, on their home page, amongst other items they have this. What about service companies, SMEs and companies in the supply chain? Will they need to embrace ESG to keep their Customers (B2B, B2C) and be part of the Supply chain. The food chain is a major challenge, Tesco, the leading UK food retailer, launched an initiative to onboard their suppliers. 2. Consumption We live in the consumer age – we over consume We like to travel , eat a good steak , own more than one car or property. Are we conscious of how buying or eating impacts the environment?

Today, around 30% of methane emissions are due to gas emissions from around 1.5 billion cows that are being used to produce milk and meat (1). So, should all become vegans? Today alternative meat , Milk, eggs, and more are all the rage. What do you think about Fish? –50% of all fish caught is discarded (2) Just look at this as an extreme and sic example,” Look carefully: these fins should be attached to the ultimate Apex Predator - the shark. I almost choked when I read those 1/4 million sharks are killed EVERY DAY for the sole purpose of making shark fin soup” Stephen Fern of https://ark2030.org

The Restoration of Oceans is a critical landmark program in our battle to end the climate crisis and the destruction of eco systems which support life on earth. Restoring global whale populations is the equivalent of planting 100 billion trees. https://www.jpost.com/environment-and-climate-change/cows-cause-30-percent-of-methane-gas-emissions-israeli-team-plans-to-reduce-it-687810

Food Waste

The cost of food waste in the UK is GBP 10.2 billion, in Israel, net US$ 4 Billion the USA a staggering $161 billion. This has both huge Environmental & social impact. Sometimes we do have choices, but there are some things which need to be in control. So, the question of who is responsible is complex - For example, should one donate money to offset the Co2 when one flies? or drive? Is buying an Electric Car such a big advantage, CO2 saving over gas cars? They still need electricity to be recharged, and metal components and battery disposal are issues.

What about Plastic – Today, there are good recycling options. Look at https://www.ubqmaterials.com/ and Israel company recycling plastic.

What about when buy or receive a Newspaper with all that waste of paper? In today’s Digital world, why do we still need printed Newspapers and Magazines? It is easy to blame the companies and products we consume, but our choices as consumers do make a difference.

Carbon offsets – Trees, Renewable Energy Reforestation, Tree Planting is used a way of for companies to offset. How effective is this? Is the Carbon offset a price fair? Is this process too complicated? In effect, Mark Carney the United Nations' special envoy for climate action and finance has stated ‘The use of carbon offsets should be a last resort to cover only a small fraction of emissions if the world is to achieve meaningful decarbonization, according to Mark Carney, the co-chair of the Global Financial Alliance for Net Zero.” In effect , each country needs to refutation and forest Conservation program program supported by their largest conglomerates.

So, in essence, going forward, the focus has to be on reduction – Waste Recycling , Energy conservation, renewable energy and green building.

The have and the have nots – a look at Social Aspect

There are huge pay gaps between the CEO, Management and employee , poor working conditions , modern slavery practices, gender diversity and the shoddy way businesses treat their customers. Shockingly, we the consumer, put up with this. Some companies see profit as the only measurement of success; The ESG train is a fast train that is bring about change. I wrote in the past about how putting customers (and staff) first increases profits and the value of the company. You also have companies that not giving back to the countries and communities that they have profited from (or exploited in the past). We have gaps between the rich and poor, and these gaps are growing, Business leaders need to embrace e these global challenges. This is not only about the Environment but world poverty and hunger. I ask how one drives around their Tesla, and not help the problem with world hunger?

I urge you to look at my blog – Global Hunger – The Gap https://innovation-esg.medium.com/global-hunger-the-gap-6623f0826ad4 In this blog , I highlight the gap which either one demands a revolutionary solution and another one calls shows an approach of simple solutions to tackle this global challenge 5. ESG Ratings & greenwashing There seem to be a lot of hypocrisy, greenwashing and over-obsession.

Indeed, in a hard-hitting article by Matt Moscardi - Dec 1st, 2021, he makes an appeal. I want to make an official request to ESG regulators and the ESG community. Stop it. “The wilderness where there is limited data but a vision for what you want to measure, whether it’s the carbon cost of an aeroplane ticket or a dividend paid to community stakeholders. Maybe this is why the regulation of ESG and the constant calls by ESG users to “standardise” and “align” and “identify the proper metrics” are unnerving. Or maybe I find it unnerving for a totally different reason: it suggests that, after more than 12 years in ESG, no one knows what the hell it is” https://www.responsible-investor.com/articles/i-want-to-make-an-official-request-of-regulators-and-the-esg-community-stop-it

On the one hand, he is correct, not all companies are equal, and different approaches are required for each type of industry, size of the Company etc., On the other hand, … "The world’s 20 largest ESG funds hold on average 17 fossil fuel companies in each of their portfolios....Asset managers have taken advantage of the hazy, unregulated definition of ESG to facilitate greenwashing."

This is the call to action from Duncan Grierson Clim8Invest.com . There is a similar argument, in this video, there is a fascinating debate how “How green finance is monopolising the planet? https://www.bitchute.com/video/mxa0Ak2DOqSs/

Indeed, Anna Shevel, a climate and social change Activist from South Africa, “I am starting to see that using solutions created by the financial sector to regenerate nature/ food systems could become highly problematic... as we celebrate green finance yet, it’s a trojan horse to cease these commons and commoditise” Ok, so by now you are even more confused and shrugging your shoulders with all hypocrisy.

So, let's reset the discussion –and let me share my definition of What is ESG?

Environment -Care for the Environment to make the world a better place for us and future generations

Social - Empower your Employees and the Community to be independent and contribute to society

Governance - Do it properly within an integrated way that combines Kindness and Truth.

Indeed, in the Bible -book of Kings it says ” People look at the outward appearance, but the Lord looks at the heart” . Samuel 16.7

It is this spirit that the approach to ESG has to be holistic and real, it needs to be based on both the mind (measurement) and the heart (willing to do good) So,

Where do we start?

Quoting Bernard Jacobs .. the chief data detective at GCX where advocates the bottom-up Data measurement approach, “Currently, it is standard practice that organisations collect and report environmental data on a quarterly or annual basis and “verified” annually. [Can you imagine if accounting departments within the organisation did the same thing, there probably wouldn’t be a company]. After verification is complete, there is a scramble to prepare data for Annual Integrated Reporting and Respond to Regulatory and Voluntary Disclosures.

Amongst other reasons, the main purpose of this exercise is to produce data and reports to help investors decide which organisations to invest in. Whilst this has historically been enough, a simple high ESG rating no longer “cuts it”. Organisations now need to [with confidence] show improvement, introduce targets, convince investors that they have a plan, and it is working.

The bottom line is, if you’re not PERFORMANCE MANAGING your non-financial and financial ESG data on [at least] a monthly basis like accountants do, then you’re probably not going meet your expectations and targets.

ESG data is far more complex and far more reaching within an organisation than accounting data. I am not saying that accounting data is easier or less important; it is probably because it is less understood.

Over the past five years, I have, together with all the subject matter experts at GCX, developed an interactive dashboard that enables complete visibility into ESG data and performance. The combination of the GCX experts, the dashboard and our advisory services deliver the following for our clients.

1. Data Confidence

2. Improved Reporting

3. Saved Time and Money

4. Reduced Carbon Footprint

5. Provided one version of truth.

One final thought As a CFO, I have created an initiative called Upgrading ESG, where I am offering a resource for companies. I truly believe the adoption of ESG by companies is an opportunity to improve efficiency and profit, help the environment and make your Company liked by Investors, staff and customers Please feel free to reach out to me at jeffrey@persofi.com to start or re-start your ESG Journey.