Environmental, Social, and Governance (ESG) Framework - Thematic Research

Environmental, Social, and Governance (ESG) Framework - Thematic Research

Summary

Sustainability used to be just about saving the planet. Today it has morphed into an umbrella term for environmental, social, and governance (ESG) issues. In this report, we have updated our ESG framework-originally published in 2020-to help CEOs identify all potential ESG risks and implement mitigating actions to improve their company’s ESG performance.

Key Highlights

• In January 2020, we predicted that ESG would be the most important theme discussed in corporate boardrooms. Since then, there have been significant lasting changes to how we interact, work, and consume. Nobody could have predicted the scale of disruption caused by the COVID-19 pandemic, and it has highlighted the importance of ESG.
• According to GlobalData’s ESG Strategy Survey 2021, 67% of ESG executives believe that the pandemic has acted as a catalyst for increased focus and action on ESG issues.
ESG will continue to drive strategic and operational decisions for all corporate boards in a post-pandemic world. Social inequality, corruption, tax avoidance, and climate change are all issues that companies must address head-on, in full public view.
• While some companies are making concerted efforts to improve their ESG performance across many areas, others are simply paying lip service to the concept of sustainable profits. The market is scrutinizing corporate ESG strategies, making greenwashing increasingly difficult.

• Adopting a holistic approach that encompasses all environmental, social, and governance issues can help company leaders to ensure all aspects of sustainability are covered in their ESG strategy. In 2022, the pressure will mount on companies to be more transparent about their ESG credentials. We designed the GlobalData ESG framework to help companies build trust with society and set them on a path towards a sustainable future.
• Environmental performance measures the energy a company consumes, the waste it generates, the natural resources it uses, and the consequences for our habitat. Climate change is increasing the frequency of extreme climatic events, and these climatic changes will have direct, negative consequences for all businesses. One certainty is that climate change will bring about many uncertainties, increasing the risk for companies and delaying investments.
• Social performance assesses a company’s engagement with its workers, customers, suppliers, and the local community. It covers human rights, diversity and inclusion, health and safety, and community impact. Social injustices created by big business can generate negative publicity, ensure that companies fail to capture the benefits of a diverse workforce, and lead to issues around regulatory compliance.
• Governance assesses how a company’s internal controls are used to inform business decisions, comply with the law, and meet moral obligations to external stakeholders. Repeated failures in corporate governance-from aggressive tax avoidance to corruption, excessive executive remuneration, and relentless lobbying—has meant that society is losing trust in big business.

• ESG will be the most important theme discussed in corporate boardrooms worldwide this decade. While previous decades have witnessed environmental movements, the current wave of sustainability consciousness is unprecedented. Each new climate-related emergency, human rights violation, or corruption scandal reinforces the public opinion that companies must take meaningful steps to address environmental, social, and governance issues.
• ESG has and will continue to govern how business is conducted globally. Stakeholders are demanding greater transparency and action on a full spectrum of ESG issues, and those that take ESG seriously will be better placed to succeed in the future.