As we celebrate Earth Day 2022, there are significant threats and challenges on the horizon in the form of environmental sustainability, geopolitical actions and economic inflationary pressures. The future of our planet and her resources appears increasingly vulnerable.
Business has a major role to play in the future of the earth and environmental sustainability. Key amongst business risk factors are environmental, social and governance factors or ‘ESG’.
ESG should be more than just data collection, reports and chatrooms i.e. ‘box ticking’. It should be about commitment to our environment, the earth and its people. Sustainability is and should be an inherent part of all business together with a commitment to playing as big a role as possible to achieve a sustainable future.
ESG applies to all business sectors and is sector-agnostic. Using the simple ‘double materiality’ approach to business allows organisations to analyse their environmental impact by assessing their overall approach to sustainability. It also empowers businesses to identify areas of improvement, investment and/or potential innovation.
The Earth - Environment
It is often said that change and reform happen from the bottom up and not the top down. Some of the most influential environmental activists are the youth in our community. Greta Thunberg started her personal campaign as a fiercely-focused teen aged 15, advocating for stronger action on climate change.
Even with evidence of climate change all around us, progress on the sustainability agenda will require more education, data analysis, investment, innovation and technological progress. Reform and change are activated through actions and campaigning, but realisation of change requires investment and commitment through innovation and technology and investment in infrastructure. Activists of all generations have succeeded in bringing the environmental agenda to the forefront and business now has a bigger role to play and an opportunity to step up and deliver.
On 21 April 2021, the EU Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD). ‘Reports’ are not instruments of change but they give access to information and data and increased transparency on corporate sustainability activity that can lead to change in attitudes and approach.
From a business perspective, investors should want to know about a company’s attitude to the environment and its impact on their neighborhood, community, planet and people. We must avoid ‘green washing’. Without access to reliable data, companies and their investors are handicapped to know and assess sustainability performance and the risks which they, as investors, may be exposed to. Publication of these reports would help to support a credible market for green investments.
The CSRD sustainability reporting is to be welcomed, encouraged and used as a template for all companies. Collecting data and preparing sustainability reports is to be encouraged whether or not there is a legal requirement to do so. It enables companies, senior management and their shareholders to regularly scrutinise what they are doing and discover ways to improve their green credentials and the sustainability agenda. This information can then be made available more widely to interested parties, including those evaluating recruitment opportunities.
During COVID years 2020-2022 social cohesion, business culture and connectivity came under severe strain, particularly for office-based businesses. Questions faced by many included – how do we stay connected to staff in a virtual workplace? How to relate to people you don’t see, who don’t or won’t communicate and who choose to stay ‘dark’ on video calls and appear indifferent to efforts to engage.
Building or rebuilding a sense of community can be achieved by focusing on areas of common interests, relatable issues and areas of universal appeal. One area is the environment.
By connecting with the workforce on areas of universal appeal, it can help to build on and towards other areas of engagement, participation, involvement and overall contribution. This April we collectively celebrated MHC Green Month. This firm-wide initiative was coordinated by a committee from across all sections of the business and we are pleased to be nominated as a finalist in the Green Awards 2022. Also, we implemented an environmental management system which was recently re-certified to the ISO 14001 standard from the National Standards Authority of Ireland.
A key component of social engagement is mutual trust and respect. Engagement across areas of common interest is vitally important to build social cohesion and forge a strong culture and sense of permanency in work-communities. Support for initiatives in the area of sustainability can serve to achieve both environmental and social aspects of strategic direction.
A helpful definition of 'Governance’ is that it is ‘the system by which entities are directed and controlled’. Governance influences how objectives are set and achieved. It also observes and polices how corporate performance is optimised whilst ensuring corporate discipline and compliance as global citizens. It contains a series of checks and balances which are required to support sustainability strategy.
Corporate decision-making is largely democratic involving members of the C-suite or Board. It does however require access to authentic, reliable and complete information, effective internal communication channels and access to expert advice. Hybrid working has many advantages. However effective governance in hybrid workplace made need specific measures to optimise access to people and accurate, reliable information. Hybrid working may pose some challenges to replicate the unquantifiable value of human connections and non-verbal intuitive markers signaled when people are present together in the same physical space. From the perspective of ESG, governance is key to remaining on-course. However, having flexibility to make timely and effective changes is also necessary to ensure sustainability targets are achieved.
As success in business is never guaranteed, the aim of governance is to ensure no inappropriate shortcuts are taken, that there are no unilateral deviations off-course or unapproved investment strategies. A goal of governance is to raise collective consciousness and foster corporate discipline. It must facilitate informed and responsible strategic decisions and investment, and be open to monitoring, review and communication feedback.
Good corporate governance is a structure and support tool. It is a defensive shield, not a sword with the aim of ensuring compliance and allows organisations to address the consequences of deviations in a timely manner.
Earth Day 2022 is celebrated to raise awareness of the vulnerability of the planet and its limited natural resources.
Business in Ireland and internationally has a role to play in promoting and advocating for sustainability. The double materiality approach is a simple tool and process for business to analysis its environmental impact by looking outward and looking inward to assess overall approach to sustainability.
ESG is a long-term commitment to our environment, the earth and its people. Sustainability is and should be an inherent part of all business together with a commitment by business to play as big a role as possible to achieve a sustainable future.
As Ernest Hemingway said, “the Earth is a fine place and worth fighting for!”
For more information about ESG, please contact a member of our Financial Services team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.