To break the ice in a talk a couple of weeks ago, I asked an audience, mostly made up of executives from large and medium-sized companies, how many had heard of ESG before 2019. The answer was less than 30%.
Angel Pérez Agenjo, Managing Partner of Transcendent
The progress made by Spanish companies in their journey towards business impact in the last two or three years is undeniable, but it is no less true that many companies still see it more as an annual mandatory reporting exercise than as an opportunity or a competitive advantage for their business.
An ESG control panel is required…
A good test to validate the importance of ESG aspects in a company is to check whether management committees and boards of directors have an integrated sustainability or ESG scorecard and what the criteria are for its configuration.
A good ESG scorecard must be based on a rigorous materiality analysis and cannot focus solely on energy transition aspects, nor only on environmental aspects, even if they are the easiest to measure. Today, we already have tools at our disposal that allow us to go deeper into material aspects by sector, by ODS relevant, with an appropriate focus on social aspects, and by priority stakeholder groups.
... to manage sustainability objectives
Only an integrated scorecard can incorporate sustainability objectives for the management committee, monitor them as a team and be able to link them to their variable remuneration in a coherent way. If this is not the case, we are making a show to cover our tracks, and with today's transparency it is extremely easy and quick to distinguish who is taking this seriously and who is doing it more to make themselves look good.
Without a scorecard it is very difficult to have strong and rigorous sustainability governance. The work of the sustainability commissions reporting to steering committees or boards needs such a tool to move forward.
One of the people who may be most interested in having an ESG scorecard integrated into a steering committee is the CFO. Financing linked to sustainability objectives is already a reality and goes far beyond green bonds. Sustainble Linked Loans are advancing rapidly and there is little time left before even working capital loans will have advantageous conditions based on ESG objectives.
The scorecard can help mitigate unexpected negative ratings by ratings and benchmarking agencies from eroding not only the company's reputation but also its market valuation and cost of funding.
Building a culture of sustainability and business impact requires a useful scorecard that is updated as the business moves forward and forms part of the core of the company's decision-making.
In some respects ESG and sustainability a good dashboard doesn't cheat - find out more in the Transcendent blog!
