Almost a year on from COP26, a summer of soaring temperatures and drought warnings has reinforced warnings of a climate emergency. And, while there is a consensus that urgent action is needed to limit global temperatures, the risk is that in the rush to showcase their ‘green’ credentials, companies are setting net zero targets without due consideration of social and governance issues.

We cannot press a button and expect a seamless switch from a fossil-based economy to one driven by renewables. Even Greenpeace has acknowledged that there must be a ‘just transition’ in moving to a more sustainable economy and ensuring hundreds of thousands of workers in the energy industry are not left behind.

The narrative on how we reach net zero is gradually changing, particularly the social impact on the most vulnerable. It is notable that the UK government is now reviewing all its ‘green’ policies to get a more rounded idea of the societal impact.

Research on ESG (environmental, social and corporate governance) by Intelex has revealed that in the energy sector, 78% of respondents said their organisation was focusing on the ‘E’ (environmental), compared to 14% for the ‘S’ (social) and 5% for the ‘G’ (governance). This puts the scale of task to persuade companies to give equal billing to each part of ESG into stark perspective.

Putting the ‘S’ and ‘G’ into ESG
There is an ever-growing political, social and economic expectation of companies to move beyond merely demonstrating their ESG credentials, to being able to evidence delivery of actual progress on the ‘S’ and ’G’ components as well as the ‘E’.

These expectations are increasing the scrutiny placed on all aspects of how companies are run – their leadership and culture, as well as compliancy, accountability and transparency.

The driver behind these expectations is two-fold. There is the requirement from governments and regulators for companies to comply with regulations around these issues. It is becoming increasingly important for these organisations to demonstrate they are doing so – not just to officials, but to all their audiences, including existing and potential customers, supply chain partners, investors and stakeholders.

Moreover, with a key audience for many brands being our younger generations – Millennials and Generation Z – who are often more discerning about who they shop with and what they invest in, ESG robustness is even more important as companies bid for their custom.

This is already affecting market behaviour. In 2021, analysis by Bloomberg Intelligence found that ESG assets were on track to exceed $53tn by 2025, representing more than a third of the $140tn in projected total assets under management.

Add to that the fact that credit rating companies such as Moody’s and Fitch have said that about a third of their ratings downgrades have an ESG component.

Certainly, our research shows that a substantial number of organisations are aware that they must up their game in improving their ESG performance. Some 78% concede that if they do not do so, key stakeholders and investors in their company may start to leave. Furthermore, 89% admit that keeping up with compliance regulations is quickly becoming one of their biggest challenges.

This realisation suggests that the penny may have finally dropped – companies that embed all elements of ESG are going to be better placed to consolidate their position in the market, while upholding their competitive edge, and are more attractive to investors.

A case in point is car manufacturing giant Audi, which has acknowledged that to attract and retain the best employees, particularly the young, all aspects of its ESG offering must stack up. Good governance extends to companies of all sizes by driving best business practice, commercially, socially and environmentally.

One of the best ways to ensure that ESG does not become all about the ‘E’ is through increasing employee buy-in.

Removing barriers to engagement
The answer lies in removing organisational barriers to engagement. Our experience shows that key to removing those barriers is having the right tools and the right data at your fingertips, alongside the correct training and engagement with the workforce to ensure everyone is on board from the outset.

Often, we see an organisation’s ESG data located in a mismatch of software and we have found that most organisations are using solutions that are not fit for purpose, meaning they are unable to put together a complete picture of ESG activity.

Being able to accurately measure ESG performance improvement metrics and return on investment is a key factor in ensuring that organisations are not just focusing on the ‘E’, and that the ‘S’ and ‘G’ are not neglected.

Paying heed to this approach has the potential to grow business by benefitting all corporate stakeholders, including employees, customers, suppliers and investors. Of course, the extra value is that wider communities and the environment benefit too.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.