Understanding the world of ESG: It looks like this

Published 14 July 2021 by Audra Walton

The ESG whirlwind is a story of survival. And it is best understood if you start at the beginning.

We are killing our planet, and not in quite the way you may think.  Most will agree the world is getting warmer. We know the ice caps are melting.  We see the record heat waves, rising seas and reduction in biodiversity.  But for those of us that think these incremental changes will happen slowly, slowly enough as to not radically transform life as we know it, you will be sorry to hear that the scientific evidence indicates otherwise.

If you haven’t yet, you may want to watch David Attenborough’s Breaking Boundaries: The Science of Our Planet.  You will learn that as the ice caps melt, the dark brown earth beneath them is exposed – attracting heat, warming up the world even further and melting the rest of the ice caps even faster, exasperating the problem until we are past the point of return. And we are not far off that point. There are other tipping points too, and dozens of studies that support this research: it isn’t about the slow reversal of the damage we have done, it is about the urgent requirement to completely stop warming our planet before it is too late.

Leaders, governments and regulatory agencies know this. They have leapt into action to begin to do what they can to save our world by putting in place laws and incentives that will spur all the players in our global network into action.

Enter: the new world of ESG, which is largely focused on the ‘E’.  It looks something like this.


 
SOURCE: CMi2i

SOURCE: CMi2i

 

The regulatory agencies, the regulations, the carbon trading schemes, the frameworks for disclosure, the ratings agencies, the shareholder action – all of it – serves to put pressure on the heart of the world economy: companies.  They hold the key to hitting our net zero target, and they are being both incentivised and pressurised to do so. Obviously, they aren’t the only parties contributing to carbon emissions, but with their innovations, and the control they have over their own emissions, they can quite literally save the planet.

What is the poor, pressurised corporate issuer to do? The fight for survival is as much their fight as it is the planet’s. The result of the planet’s battle is record temperatures, flooding, extinction and cities that are slowly falling into the ocean. But the result of the company’s battle is rising prices, competition for capital, carbon taxes, supply chain disruption and Boards under constant scrutiny and threat. To survive this new world most will have to completely rethink their products and services, the way they deliver them, where they manufacture them.  They will have to develop ways of measuring environmental performance down to one-hundredths of nanograms. They will have to campaign to show the progress they are making. They will have to take climate risk into account in financial projections, and ultimately, they will have to fight for the right investment—investment that understands and supports their ESG journey. This is not a time for the faint of heart in the business world. It is perhaps the corporate community’s first, true existential crisis.

So, if someone asks you to elucidate the complex world of ESG—to distil the dizzying array of frameworks, regulations, coalitions, ratings agencies and laws around the ‘E’ into something that they can digest, you can say this: it is quite simply a fight for survival—not only for the coral reefs, forests, plants, animals, icecaps and oceans, but for the companies that feed, clothe, transport and connect us. And whether it is through a willingness to buy a more expensive ethical shirt, or put money in an impact fund – we are all soldiers in these two battles for survival.

Written by Audra Walton


About CMi2i

CMi2i, the world’s leading forensic capital markets intelligence firm, specialises in the world’s most accurate Equity & Debtholder identification service and supports issuers and their advisors with their ESG investment, investor relations, M&A, virtual AGMs/EGMs, shareholder activism, capital restructuring and reputation management goals. The company has supported more than 1000 corporate transactions, and has over 500 clients worldwide.