Insights

This article has been taken from GRESB and adapted.

The race to net zero is well and truly underway, but how well are businesses coping with the wider strategic aspects? The almost meteoric rise of environmental, social, and governance (ESG) is evident across real estate, but so is the landscape of legislation, new assessment criteria, and reporting frameworks; not to mention the very real climate risks it is meant to address.

How do you engage in something that appears in different constructs to different audiences? The physical risks of climate change, the financial risks, and personal risks? Are you an investor, an asset manager, or a CEO? Do your assets stretch over different legislative zones? What are the latest policies? Is it top-down, bottom-up, or both?

How do you meaningfully engage when there is a constant raft of conflicting messaging in the media, when there may be regulation, reporting, legislation, and consumer/investor/stakeholder pressures? Investor engagement is on the rise, but what does it mean to engage with ESG? How does it create value for the business world? Can it help to achieve and support corporate goals and de-risk some of the challenges?

“There is clear evidence that engagement by investors with companies on (ESG) issues can create shareholder value. But, despite the growth in engagement activity by investors, exactly how ESG engagement creates value is poorly understood.” (PRI, 2018)

Latest reports show that understanding of ESG is rising, however, the delivery and true quantification of results has a long way to go. Identifying a company’s core business and the industry issues pertinent to them is a good start. Firstly, establish whether it is a positive engagement or reluctant compliance.

Corporate or investor engagement needs to be addressed differently. Engagement should be used proactively and strategically; it should be a circular approach of identifying, testing, adjusting, and testing again to constantly create better ESG management systems.

Then, clarify; what does engagement success mean?

ESG issues can affect the performance of investment portfolios to varying degrees across companies, sectors, and asset classes. Therefore, engagement across these areas need to vary.

With the focus moving on from just the E to the S and G, particularly now that ‘social’ is becoming more ‘popular’, we are seeing a rise in interest, and what once seemed immeasurable is now tangible. The value is provided as a way to provide boards with the exact information they need, to assess business risks and opportunities, and to clearly have all your data gathered in one place. It’s also one place where a board can manage global workforce management, register the impact on their local communities, and identify opportunities all while avoiding business risks such as stranded assets. Engagement is critical to the success of an ESG strategy.

True transparency and rapid reporting are required when holding countries and companies to their emissions pledges, yet there is still confusion around what ESG means, and to some, it means more, or less, than to others. What is clear is that an ESG strategy is not a piece of paper that stakeholders can cling onto to better please their investors. Applying ESG principles may better align investors with broader objectives alongside specific material aspects, thereby creating value for companies and investors. Recommendations as follows:

Communicate

• Keep it simple, break it down, and identify your audience. Clearly identifying impacts is often an effective way of engaging.
• Relate the engagement to the individual owner/industry; it then becomes easier to address material issues, always being wise that individual exposure can vary.

Learn

• Identify your own enablers and barriers to engagement success, then work together to enact positive demonstrable change.

Get your governance right

• Utilise the learnings across ESG with feedback loops between investors, ESG information, and knowledge exchanges. Corporate transparency benefits all, both internally and externally.
• Make use of internal ESG systems to better communicate and upskill all stakeholders.
• Finally, let us all not lose sight of the end goal; the focus should be on setting net-positive strategies to build a restorative, regenerative economy for the benefit of all. We must be urgent yet patient, provide clarity but also be concise. There is no one-size-fits-all, there is no panacea and there is certainly no time or room for greenwashing. ESG must be clearly explained to provide well-informed stakeholders with the roadmaps, clear processes and the implementation, the knowledge and the ownership to clearly execute ESG strategies for people, the planet, and profit.