Why ESG and corporate reputation have never been more important
By Alberto Lopez-Valenzuela, Senior Partner, Penta Group
COP27 may now be over, but the discussion around what it really delivered will continue. Whilst there has been positivity around the development of the historic Loss and Damage Fund, which will provide financial assistance to poorer nations stricken by climate disaster, many voices are already asking – did COP27 really go far enough?
As commentators dive into the details of what was agreed during the two-week conference in Egypt, one aspect that the financial services sector needs to get to grips with quickly is the question of what COP27 and the growing focus on ESG mean for businesses from a reputational point of view.
As corporates and global investors continue to promote their sustainability credentials by investing increasing amounts of their marketing and advertising budgets, scrutiny will continue to rise. This is thanks in part to social media, where voices calling out corporate bad behaviour can quickly gather momentum. Indeed, there is nowhere to hide if you are making ESG claims about your business that don’t ring true.
Indeed, several companies have already found they have fallen foul of increasing scrutiny, with household brands and financial institutions having been openly reprimanded by the Advertising Standards Authority this year over their sustainability-based advertising campaigns not stacking up and not standing up to public scrutiny.
Claims around sustainability clearly need to stand up to ever more intense questioning. If they don’t, then financial services companies can expect customer backlash and negative media attention on the issue which in return represents a real risk to reputation – reputation that can take years to build and just one mistake to seriously damage.
This point was backed up at COP27 by Antonio Guterres, UN Secretary General, who pledged zero tolerance for greenwashing and made it clear what was expected: “We urgently need every business, investor, city, state and region to walk the talk on their net zero promises. We cannot afford slow movers, fake movers or any form of greenwashing.”
His newly established UN High-Level Expert Group then put forward their recommendations in their first report. Some of the stringent recommendations included corporates and countries not being able to claim to be net zero while continuing to build or invest in new fossil fuel supply or any kind of environmentally destructive activities.
Additionally, they cannot participate or have partners participate in lobbying activities against climate change or just report on one part of their business’s assets while hiding the rest. What is clear is that accountability, responsibility, openness, and measurable goals are going to be crucial for corporates going forward, in a world where ESG is becoming increasingly important.
Now more than ever, corporates need to assess and understand their current ESG position – getting it wrong can be hugely detrimental to the reputation of a business. Every business needs to have a clear vision for achieving net zero and this needs to be delivered from the top down. In its simplest form this means there needs to be an ESG strategy, implementation plan and ESG reporting and measurement. The final point is critical, because against a backdrop of increased scrutiny, proof points and authenticity matter more than ever.
We have seen companies deliver the above very well and bask in the reputational halo effect it delivers. We have also seen companies get it wrong and not be able to back up their claims.
The focus on the financial services sector’s ESG credentials is now going away – as we head into 2023, it should be assumed by all businesses that customer and media apathy on the issue simply does not exist. To quote a recent Penta blogpost, COP27 is an opportunity for the prepared and a risk for the negligent. How your business communicates its ESG commitment will be a pillar that can hold up and raise your reputation – or one that could cause it to crumble.