Vicky Dean, chief revenue officer at Goal Group, investigates the issues around ESG compliance and its significance for successful global commerce
A company’s ESG policies and performance are increasingly scrutinised as part of its overall investment strategy. Companies are closely monitored for the impact they have on the community and the environment, and are held to account by investors, clients, regulators, employees and stakeholders looking for a holistic approach to business. With this focus, how should a responsible company ensure best practice?
As a major global fintech, Goal Group is committed to the UN Principles for Responsible Investment. Our ESG governance policy conforms to ISO 27001 and we strive to apply recognised ESG standards, where they exist, in all business dealings.
ESG is a relatively new term and has developed from the initial strategy of Corporate Social Responsibility (CSR). CSR aimed to make businesses accountable, but at the point of its inception, there was no measure of comparison.
The criteria for ESG policies is much more proactive and enables a clearer measurement of a company’s activities. However, despite there being at least 13 voluntary codes, there is no universal standard.
In the US, ESG disclosure requirements are being rationalised. The EU is rolling out a series of mandatory ESG compliances, and the UK Government is currently holding a consultation on whether regulation for providers of ESG ratings should be introduced.
Understanding your rights as a shareholder
Governance in ESG refers to the leadership and management of a company; decision-making, policy creation, how shareholders are included and informed, the rights and responsibilities of all management participants, and how its leadership approach is aligned to the expectations of its stakeholders.
It also analyses what controls can operate internally to ensure accountability and transparency.
Good governance practices inevitably make better businesses. A prudent, honest and effective management team, accountable to and enjoying the trust of all its stakeholders, will inevitably lead to sustainable and long-term growth.
Research suggests that companies with demonstrable governance policies are stronger financially, more efficient and resilient. They are more likely to attract customers (and investors) and have reduced risk complications.
A 2020 survey by Deloitte revealed that 59 per cent of companies reported positive top-line impact from ESG investment, and more than half the companies surveyed noted a positive effect on overall company profitability.
In comparison, lack of a comprehensive ESG policy, or poor ESG compliance, can create substantial regulatory risks and lead to incompetent decision-making. An analysis by RobecoSAM of 4000 public equity companies found that those with the lowest governance scores underperformed in the market by 7.8 per cent, compared to those with better ratings.
At Goal, our extensive securities class action recovery service involves constant interaction with company shareholders and, as a result, we recommend unambiguous information-sharing with them as a key part of ESG strategy.
Shareholders should be aware of their accrued rights and their power within a company’s ESG policy, such as how to utilise that power to submit shareholder proposals, or to embark on a class action lawsuit — should that course of action become necessary.
Proxy voting is another area where shareholders can wield their authority. If voting by proxy, it’s important to check that the recommendations of the board of directors align with your own views. Good governance should take advantage of this power and harness it responsibly. In fact, we have found that shareholders are frequent drivers of ESG policy.
Fulfilling fiduciary duties and legal responsibilities are critical for good governance. The trust between customer and company can only be achieved when business operations are conducted with integrity and respect. Our withholding tax claims and recovery service is conducted within a framework of robust anti-bribery and anti-corruption procedures, which inspires confidence in the process from our clients.
Good governance should ensure company resilience is built into ESG policies by putting in place detailed plans for both risks and crisis mangement. The difference between the two terms can sometimes cause confusion. Risk management involves planning for events which might happen in the future, whereas crisis management involves the reaction to a negative event.
If a company’s risk management is sound then the response to a crisis should kick in instantly when a problem occurs, in order to demonstrate competence and reassure shareholders. From GDPR breaches to a once-unimaginable global pandemic, contingency plans should be regularly updated and tested.
Maintaining relationships with stakeholders
The social aspect of ESG is largely about a business’s relationship with its stakeholders. This includes all human resources, such as an equitable pay structure, health and safety provision, ensuring employee satisfaction and engagement, and the embracing of diversity, equity and inclusion.
Investors will increasingly explore a company’s commitment to driving higher standards of health, welfare and human rights. In addition, talented people will prioritise it when job-hunting, and customers will make purchases based on ethical considerations. This doesn’t just apply to the company itself, but has the wider remit of principled interaction with suppliers — ensuring their ethics are equally sound — and with clients and the community in which it operates.
As a worldwide market leader in both withholding tax reclaims and securities class action recoveries, Goal takes GDPR, and the security of our data capture measures, extremely seriously. We are proud of our rigorously applied safeguards.
Our ESG social framework also encompasses support for the arts, education and community events and has a particular emphasis on staff volunteering projects, with every employee being offered two days a year to volunteer for an approved organisation. We have established a diversity, equality and inclusion policy which applies not only to our employees, but also to our associates, vendors and clients.
Responsible business operations
The environmental aspect of ESG encompasses the carbon footprint that a business leaves on the environment. This includes its guardianship of natural resources and energy use, how it deals with the creation of waste and pollution, and how it responds to climate change issues, such as flooding and other extreme weather events. We have taken a proactive stance on our environmental obligations, with detailed energy conservation and recycling strategies, and the use of environmentally-friendly technologies implemented wherever possible.
We have committed to the UN Global Compact, a non-binding pact that encourages businesses to adopt responsible policies and practices in human rights, labour, the environment and anti-corruption.
A raft of worldwide ESG legislation is due to come into effect in 2023, including the Sustainability Disclosure Requirements (SDR), introduced by the UK Financial Conduct Authority. This has been developed to clamp down on ‘greenwashing’, where companies make exaggerated and unsubstantiated sustainability claims which lead to shareholder confusion.
SDR will ensure that data presented to investors is well measured and accurate. For companies dealing with the EU, compliance with similar measures is already mandatory under the Sustainable Finance Regulation (SFDR) and EU Taxonomy regulations.
At Goal, we expect this transparency to increase as consumers and investors become better informed about the businesses they support. We have seen first-hand the positive connection between practical, impactful ESG policies and commercial growth.
We remain convinced that businesses who continue to ignore ESG do so at their peril.
