ESG – where does reporting meet reality?

What do you see as the purpose of environmental, social and governance? Luke Cross of Social Invest unravels the latest communications trends around ESG.

Is it about ‘doing good’? Is it a way to measure and manage risk? Is it a means to drive value across the business, including the bottom line? Or an opportunity to showcase your values and align them with like-minded partners? You might see it as something that will fundamentally transform your business culture and strategy – or simply as a reporting tool to demonstrate progress and performance.

In reality, it is likely to be a combination of the above.

Whatever your take on ESG, a key consideration is the extent to which your own interpretation aligns with that of your stakeholders – investors, staff, customers, tenants, suppliers, regulators and others.

ESG is a complex topic at the centre of much debate in political, media and financial circles alike, where competing agendas are often at play.

It’s easy to become either overwhelmed or disengaged as a result, and to lose sight of what ESG was first intended to do – drive value by properly managing risk, while at the same time contributing to the sustainable development of society as a whole.

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Quite often, ESG is used interchangeably with sustainability or impact, or set in loose and sweeping terms like ‘saving people and planet’.

But ESG in the financial sector is quite particular, and has traditionally focused on the impact of ESG factors on a business, rather than the impact of the business on the outside world.

So straight away, there’s risk of misalignment between the way ESG is talked about and how it is applied in practice.
This has ramifications for people’s expectations and perceptions of ESG – and has been one of the triggers of the criticism we’ve seen play out in the mainstream media – the so-called ‘ESG backlash’.

Clarity of message

The starting point for any ESG approach therefore has to be that you, your leadership team, board and colleagues are all on the same page with what you mean by ESG, and what you consider to be your objectives and priorities.

And importantly, that you’re speaking the same language as your stakeholders or audiences.

Just as important as this clarity of language is accessibility, transparency and clarity of information and data that forms the evidence base for your ESG reporting (which speaks to the ‘G’ too).

In a world of greenwashing and now increasingly ‘greenhushing’, this can’t be overstated – and not just when it comes to disclosures to investors.

Because out in the real world, ESG issues are everyday issues that people working and living in the built environment both value and want to see given due consideration.

It’s essential that people who work and live in these buildings can make sense of what it is that asset owners are delivering and reporting on, whether they be occupiers and tenants of commercial buildings, or residents living in social housing.

This clear line of communication will help address key challenges, from measuring and helping to manage the carbon footprint of tenants or occupants, to engaging with people on why and how their homes need to undergo a retrofit programme that will deliver long-term benefits but likely disrupt their everyday lives for a period of time.

Retrofit: where ‘E’ meets ‘S’

Retrofitting the built environment is a great example of where ‘E’ and ‘S’ factors intersect.

From mitigating climate risk and delivering a just transition, driving up energy efficiency and reducing operational carbon emissions, through to the maintenance and enhancement of the natural environment and green spaces – we know there are numerous E factors that impact on the S, particularly in terms of wellbeing.

And they are only becoming more pertinent during a time of economic hardship – from ensuring social homes are more efficient, warmer and cheaper to run and facilitating healthy working and living environments, to forging a sense of community in our residential and workspaces alike, and fundamental building safety issues that have been front and centre since the Grenfell Tower tragedy more than five years ago.

Whatever you see as the ‘true meaning’ of ESG, there is no denying the importance of E and S factors in mapping a brighter future for the UK built environment.

How all these factors are measured and managed is where ESG meets sustainability. And it’s the responsibility of us all to help facilitate a transparent approach that enables us to stay the course.

• Luke Cross is director of Social Invest