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ESG: importance of data, take one step at a time

Sir David Attenborough said from the stage in COP26 that reducing the rate of climate change is about a single number: the concentration of CO2 in the atmosphere (412.5 parts per million, in case you needed to know). In many senses, that’s right, of course – and it is important to get across the challenge that we all face in simple terms to which we can all relate.

But we all do appreciate that there are many dimensions involved in building a world fit for purpose. ESG stands for “Environmental, Social and Governance”, and the topic that we all manage, day-to-day, is a much larger and more detailed story.

And, of course, we also appreciate the important announcements that are coming out every day, not just in the context of the political jamboree that surrounds COP26. Here are just some of the net-zero pledges that organisations have announced in recent months: Amazon (by 2040), Apple (by 2030), BHP (by 2050), Carlsberg (by 2030), Dell (by 2050), Etihad Airways (by 2050), Ford (by 2050), IBM (by 2030), J.P. Morgan (by 2050), Marks & Spencer (by 2040), Mars (by 2030) and Tesco (by 2050).

How do we feel about long-dated net-zero targets?


  • Is it COP 26; or
  • COPOUT 26?

We are aiming for the moon, and that’s because we need to get to the moon. But, on the other hand, the danger of the far-off goal is that we defer the steps needed to move towards it. It will be something our successors really have to deliver; it is not a problem that we own today.

What should we do about this?

We need to hold organisations to account. And that means we need to know where we are right now and crucially set short term targets that can be hit or missed. Moreover, delivering change in practice is a “relative” business. Tomorrow we need to be relatively better than we are today. Each small step that we take now brings us closer to an absolute standard that we know we must hit. As they say, “Rome wasn’t built in a day” – but if we can measure what do right now, we can set a realistic short term goal that can be delivered in a time frame that makes sense for today’s consumers, shareholders and the senior management of the businesses in which we all participate.

If we can measure incremental change over the short term, we can hold people to account.

We should recognise two things

First, as pointed out above, change is a relative concept, not an absolute one. We can keep talking about hitting net zero, for example. For a given business, that might be a big step or a little one – that’s not something that we can understand from the announcement of the target itself. Is it just that Carlsberg needs to make beer that’s less fizzy, or is there more to it?

It is easier to see this point if we look at a “social” ESG target: for example, how much should workers be paid? Here in the UK, we might think someone is poor if they cannot afford a television. In Bangladesh, where we have had an office for over 6 years now, a worker is poor if the family that he or she supports cannot get enough food to eat that day. A living wage here is different to a living wage there. But, of course, just because workers are paid much less in Bangladesh, for example, does not absolve us from the responsibility of paying them fairly in the context of their local marketplace, equally as between the sexes, and to meet the standards that their own government demands for their own population. And we should target incremental improvements on those worker conditions from where they are now – rather than suddenly demanding that they all get paid a living wage equivalent to £10 an hour.

Environmental targets should be no different. Just as we can imagine it’s easy to check how much workers are paid in a factory in Asia, we can actually measure the environmental footprint of a business in real-time. The technology exists to do this right now. If we can measure something in real-time, we can then set short term targets and hold businesses to account for delivering them.

Second, we need to expand the pressure points on business to include the consumer much more directly than we do today. The food industry in the UK has led the way already with much greater information on how food is produced, where it comes from, and the packaging that it comes in. This allows consumers to start voting with their wallets.

Perhaps we would pay a little bit more for a pair of jeans if we knew it was made from sustainable materials, it was clear how to recycle all the components of it (from the zip and the buttons to the cotton), and we knew which factory it was made in and how the workers felt about their workplace.

And the technology exists today to deliver that information through to the rail in a shop or to the mouse-click online.

What’s stopping us then?

It’s a scary process when real transparency first gets delivered to the front line of a business. What if things don’t look great? Of course, we can’t expect perfection. But with initial transparency, then comes the ability to accelerate improvements in key areas that matter to us all: protecting the environment and treating people fairly.

We need to make a start.

And finance has a big role to play

All of these small steps link naturally back to the world of finance. Once we have data, we can engineer processes that reward improvements and penalise backward steps. This is where corporate treasury and banks come in. It is unrealistic to make financiers responsible for delivering change – a point that the media and sometimes the regulators may not always remember. This is for “Main Street” not “Wall Street” to deliver.

But it is very reasonable to set up the financial system to drive a step-by-step approach in business to ESG change.

And the best way to do all of this is to develop real-time measures of ESG that link, immediately, into the cost of money delivered into supply chains by SCF and trade finance programs, and, by implication then, the cost of money reaching the big corporates who really do have the ability to make a difference.

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