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Episode Summary
Host:
- Curtis File, Editorial Manager, ESG and Sustainable Finance
Featuring:
- Adam Gorley, Editorial Manager, ESG and Sustainable Finance
With all the noise about ESG in the news, it can be hard to discern what is really happening. We know that the increased demand for companies to address environmental, social and governance issues has meant that organizations have had to make significant changes to how they work. But when it comes to addressing, measuring and reporting on ESG performance and impact, what’s really going on behind corporate doors?
In this episode of ESG in Conversation, we explore that question by examining how the responsibilities of CSR and sustainability professionals are changing to address their company’s material ESG issues. You’ll hear about the results of the Morningstar Sustainalytics Corporate ESG Survey, with insights about the challenges, concerns, and evolving roles of CSR and sustainability professionals around the world.
Read the full Morningstar Sustainalytics Corporate ESG Survey Report 2022
Download the report to learn about the ESG challenges companies face around the world and the resources CSR and sustainability professionals are using to meet them, key steps to ESG maturity, where companies are focusing their ESG investments, and how companies are using their ESG ratings and scores.
Key Moments
| 00:00 | What’s Really Going on Behind Corporate Doors? |
| 01:41 | Introduction to the Morningstar Sustainalytics Corporate ESG Survey |
| 02:41 | Initial Survey Findings |
| 03:53 | Insight One: Managing More ESG Activities |
| 04:51 | Insight Two: Challenges in Setting Goals and KPIs |
| 07:34 | Insight Three: Structural, Technical, and Cultural Challenges |
| 08:28 | Insight Four: Consultants in Demand |
| 09:22 | Insight Five: Environment a Top Priority |
| 10:25 | Insight Six: Leveraging ESG Ratings |
| 11:44 | Morningstar Sustainalytics Survey 2023 |
Transcript
| 00:04 | Curtis File: When you search the headlines for news about ESG trends, you get, well, a lot of noise. |
| 00:37 | CF: It can be hard to discern what's really happening. We know there is demand. |
| 00:41 | Clip1: ESG is now big business. It represents, by some estimations, something like $35 trillion worth of investments. |
| 00:50 | CF: And we know there's growth. |
| 00:51 | Clip2: If you look at China, I mean, if you look at the number of the ESG funds, it has been doubled in the past three years and tripled over the past five years. |
| 01:00 | CF: But when it comes to ESG, what's really going on behind corporate doors? I'm Curtis File editorial manager with Sustainalytics and your host for today as we examine that very question. |
| 01:41 | CF: Back in the spring of 2022 the thought leadership team here at Morningstar Sustainalytics noticed that there was an absence of data in the market for how CSR and sustainability professionals were actually doing their work. There was a lot of information about how C-suite executives were thinking and planning around ESG, but there was a gap in understanding how practitioners were putting those strategies into action. That's what we were looking to uncover when we launched the Sustainalytics Corporate ESG survey. I recently talked to the lead author of the survey. |
| 01:59 | Adam Gorley: Hello, my name is Adam Gorley. I am an editorial manager, ESG and Sustainable Finance at Sustainalytics. |
| 02:07 | CF: Adam had questions about how corporations were managing all of the work that ESG programs demand. |
| 02:14 | AG: Well, we knew that this growth had to mean that companies were changing CSR and sustainability professionals had to be taking on more work in terms of corporate ESG responsibilities. But we wanted to know the extent of those changes. What work were they doing and how were they solving challenges? |
| 02:31 | CF: To answer that question, we conducted a survey that reached over 500 corporate CSR sustainability professionals. The results were, in some ways, expected. |
| 02:41 | AG: Actually, almost nine in ten CSR and sustainability pros are doing more than half of the corporate ESG work at their companies. So, this meant that companies are taking either their current sustainability roles and modifying them, you know, with these new tasks, or they're bringing on new staff to do these jobs. That confirmed our ideas about the state of ESG in CSR and sustainability. |
| 03:08 | CF: But there were still some surprises. |
| 03:10 | AG: You know, another surprising thing was that close to 30% of the respondents have more than ten years of experience in CSR and sustainability. So, you know, of course, these people are, I guess, well positioned to transition to corporate ESG work. And then on the other hand, though, almost 50% of the respondents in the survey had less than five years or five years or less experience. So, the field is still growing, developing, you know, and we're going to see that that's going to be very interesting to watch over the next few years. |
| 03:41 | CF: The survey confirmed our initial thoughts. CSR professionals were indeed taking on more corporate ESG tasks. But the survey also revealed a number of interesting insights. Six to be specific. |
| 03:53 | AG: The first key insight that we found was that CSR and sustainability teams are managing more corporate ESG activities. |
| 04:01 | CF: These activities include reporting and disclosure targets, setting in measurement, program planning and ESG ratings. To a lesser extent, CSR professionals are also spending time on more complex ESG problems like supply chain management and financing. |
| 04:17 | AG: Right, so, definitely companies are thinking about ESG and what it means, and they are tasking their existing staff or they're looking at their existing resources to understand how they can, you know, take on these tasks. Some are taking a more strategic approach and others are really just kind of getting their feet wet. And the survey kind of captured this full range of levels of adoption. |
| 04:45 | CF: Along with this new corporate focus on managing ESG issues comes a number of challenges. |
| 04:51 | AG: Insight two was that defining goals and setting KPIs are slowing companies progress on adopting a strategic approach to corporate ESG. The main thing about this challenge is that setting KPIs involves a fair amount of data and measurement, and companies are just not at that stage in some respects. In many cases, they're sort of maybe stuck, or at least paused, in the earlier stages of adopting ESG or considering ESG in a strategic way. So, you know, they may still be attempting to understand what their material ESG issues are, and they need a certain amount of capability or competency to figure out what what the specific goals, and KPIs are. Because this is not just about saying, okay, I have this, you know, broad goal to reduce emissions or something like that. This is about, you know, setting very specific KPIs that you can measure against on an annual basis. So, companies need a lot of data about what's going on in their company and how what the kind of, for instance, with the example of emissions, you know, what their emissions are, which is something that is quite new for a lot of companies. They're just not used to obtaining and analyzing this kind of data. |
| 06:18 | CF: Some companies are aware of the competitive advantage developing this experience could yield, but they also realize that it takes time and investment. In the meantime, companies are looking elsewhere for guidance on defining their goals and KPIs. |
| 06:32 | AG: The companies that are interested in doing this are trying. And one of the key ways they're doing this is by essentially hiring consultants. What we found, you know, that's the main way that the companies are looking for help to sort out their KPIs. Another thing they're doing is looking at the written guidance and standards that are out there in the market now that are in many cases still under development, but those provide fairly strong guidance for companies to understand their goals and KPIs. |
| 07:13 | CF: CSR professionals, especially those early in their careers, may find it challenging to navigate this new world of ESG issues and metrics. But in many ways, they're forging new ground as their companies keep pace with investor, consumer and regulatory demands. And like any team trying to build something new, they're facing a lot of challenges. |
| 07:34 | AG: Insight three was that CSR and sustainability professionals face structural, technical and cultural challenges in building effective corporate ESG programs. One of the big things we found was that and maybe this is not too surprising, but the top challenges, which include budget constraints, lack of human resources, measuring reporting and disclosure, setting goals and targets and more. These top challenges all relate to the basic sort of key steps that companies need to go through to develop an effective ESG program. So, it seems, you know, the results seem to indicate that they're working through the issues, but they need help. |
| 08:15 | CF: This need for expertise and guidance on ESG reporting and goal setting is driving demand for consultants and service providers to fill in the knowledge gaps. Which brings us to our next insight. |
| 08:28 | AG: Insight four was that consultants are in demand for support addressing ESG challenges. ESG Consultants is a pretty wide range, you know, that can be anybody from a small shop that's just a couple people or even an independent consultant to the top consultants that can do sort of a wide range of things. Consultants may be called in to do any of the kind of things that we've been looking at, like supporting companies with understanding what their material ESG issues are, setting goals, appropriate goals, and understanding the data required to set the KPIs, you know, reporting and disclosure. These may be issues that a consultant would support a company with. |
| 09:12 | CF: While many companies are still struggling with KPIs and defining their ESG strategies, one thing is clear they are focused on the environment. |
| 09:22 | AG: Insight five is that the environment is the top ESG priority for sustainability and CSR teams. It's not too surprising to me because environmental issues are constantly in the news. Obviously, climate change these days is an unavoidable issue and companies are becoming more aware of the impacts not only that they're having on the environment, but that environmental issues may have on their operations. So, like I said, this was not a huge surprise, but it was interesting that the environment was more important to companies than both governance and social issues combined. |
| 10:11 | CF: While the survey revealed a lot of the challenges and struggles companies are facing with their ESG programs, it also showed that they are willing to face those challenges and embrace the idea of understanding and improving their ESG performance. |
| 10:25 | AG: Insights six is that more companies have an ESG rating or score, and they're using it. Companies are really just starting to understand in some ways the role of ESG ratings and ratings providers when it comes to supporting their efforts to understand and address material ESG issues. It's important to note that a rating is not just a number for companies to share in annual reports and with investors. You know, when a company obtains a rating or a score, it comes with access to the data and the research underlying the score. You know, and the provider will generally offer some interpretation the company can use to examine its performance and even compare its performance to competitors. So, there are a wide range of uses for an ESG rating or score, including obtaining sustainable financing, benchmarking, gap analysis, making internal improvements, competitive analysis, you know, responding to stakeholders, financial reporting, you know, and other things. At the same time, our survey found that most companies that have an ESG rating or score are using them for the basic purposes of their annual ESG or CSR reporting and for investor relations, and far less so for sustainable finance and financial reporting. |
| 11:44 | CF: The survey confirmed that companies are taking ESG more seriously and they are being more intentional about the ESG practices they adopt. They're taking time to consider and develop goals KPIs and strategies to address material ESG issues. This is leading to a convergence of CSR, ESG and sustainability roles. How these roles evolve over the coming years will have a huge impact on how companies are able to meet their ESG goals. We'll be continuing to track this evolution in 2023. |
| 12:15 | AG: So, we'll be holding a new survey in 2023 and we're going to look at some of the same issues so that we can compare and get a sense of the progress or the change on these issues. But the next step is what does it take for companies to lead on corporate ESG? So of course, we touched on that a very little bit here in this survey. But this year we want to get a closer look at what companies are thinking about in terms of what's required to be sustainability leaders. |
| 12:44 | CF: That's it for this episode of ESG in Conversation. If you'd like more information about the state of corporate ESG, head over to our resource center at www.sustainalytics.com and read the full Morningstar Sustainalytics Corporate ESG Survey Report. Additionally, you can read more regional specific reports that cover Asia Pacific, Europe, Middle East and Africa and the Americas. If you have any questions or suggestions for topics you'd like to learn about, email us at [email protected]. Thanks again to Adam for providing his insight and thank you for listening. |
| 13:23 | CF: Copyright 2023 Sustainalytics. All rights reserved. Sustainalytics does not assess current market trends, legal or regulatory developments, but only opines on recent ESG-relevant developments. The information and data contained herein are proprietary of Sustainalytics and/or third-party content providers. These are intended for informational, non-commercial use only and may not be copied, distributed or used in any other way, including via citation. These do not constitute an endorsement of any product or project, nor an investment advice or expert opinion, are not part of any offering and do not constitute an offer or indication to buy or sell securities, and have not been submitted to, nor received approval from, any relevant regulatory bodies. Sustainalytics assumes no responsibility for the reliability, completeness or accuracy of any opinion provided herein and makes no representation or warranty as to any of the information, including, without limitation, any representation or warranty that the information or any portion of it is accurate, complete, or suitable for a particular purpose. Neither Sustainalytics/ Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information and use is subject to conditions available at https://www.sustainalytics.com/legal-disclaimers/. |
References
1. Bloomberg Originals. 2021. “ESG Ratings Are Not What They Seem”. December 20, 2021. [Video] https://www.youtube.com/watch?v=f_rrS-_giP8
2. Bloomberg Television. 2022. “China’s ESG Funds Doubled Since 2021”. September 7, 2022. [Video] https://www.youtube.com/watch?v=rRKObkrkTMQ
