Significance of ESG For The Board

February 20, 2020

Carlyle hosted a group of Executive and Non-Executive Board members for our first London Board Dinner event of 2020 at the offices of Addleshaw Goddard. The dinner invited engaging discussion on the significance of ESG and what it means for Boards.

Environmental, Social and Governance as a collective concept is defined as a company ‘doing well by doing good’, and has now entered the mainstream as a valid determinate of long-term business performance. Its story began in 2004 when former UN Secretary General Kofi Annan wrote to over 50 CEOs of major financial institutions, inviting them to participate in a joint initiative to find ways to integrate ESG into capital markets. Following this, the term ‘who cares wins’ was also adopted as an ESG mantra. Today, investors have injected an average of £124m a week into UK ESG funds as the popularity of sustainable and ethical investing continues to rise.

The following key stakeholder perspectives were considered in this roundtable discussion regarding ESG’s significance for the Financial Services industry and further afield:

The Board:

 The benefits of the successful implementation of ESG from Board level down include PR competitive advantages and operational cost-effectiveness which collectively result in a stronger financial performance. Therefore, ESG should be given strong consideration from Boards in order to improve competitiveness within their industries.

·        A drawback however of pushing a PR campaign with ESG is that it can expose your brand to criticism when unfortunate incidents occur. Consider the Deepwater Horizon oil spill with BP – an event that amassed widespread media attention and negatively impacted the environment. Boards who operate in industries with environmental risks must be cautious when they approach ESG marketing, ensuring that they act on ESG morals within their practices as well as in their PR publications.

Prospective & Current Employees:

·        The upcoming generation of graduates and entry-level young professionals prioritise ESG as a criteria in their job selection. Those firms which pursue ESG initiatives and imbed it into their culture are better placed to attract and retain.

·        Retention of talent is largely dictated by employee satisfaction, a crucial Social Capital factor of ESG. A 2011 study conducted by Edmans found that employee satisfaction causes stronger corporate performance through improved recruitment, retention and motivation.

Clients:

·        Considering clients – in scenarios such as pitching for new work, the ability to prove that ESG is intrinsic in your organisation is vital.

·        ESG must be sought within your organisation as well as with the clients you work with. It must be a living and breathing entity from top to bottom, with one guest commenting that even the finer details such as ordering pens which are known to be manufactured in factories associated with child labour can be an easy mistake to fall into.

Consumers:

·        From the consumer’s perspective, there is an inner conflict when paying for services of companies such as Amazon. Where convenience of service is king, unfortunately they are subject to excessive and wasteful amounts of packaging. Throwing the dilemma of cost to the environment versus cost to your wallet – where alternative vendors who have more environmentally considerate practices (at a potentially higher price) must be considered.

Managing Partner of Carlyle, Carol-Ann Searles, chaired the discussion and commented on the event:

“We are delighted to host such a variety of Board leaders at these events. Topics such as this are crucial for businesses to consider and discuss how to tackle. The Board Dinner series helps Carlyle to further understand these topical issues from the perspectives of our clients as the discussions and views given are invaluable. We hope that these conversations encourage all of us to better ourselves as leaders, while we seek to create greater impact for the organisations in which we play a role.”

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