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Mar 13, 2023

Eight takeaways from the ESG Integration Forum

Highlights from event that took place in London on March 2

Earlier this month, IR, sustainability and governance professionals engaged in lively debate at the ESG Integration Forum, hosted by IR Magazine and Corporate Secretary in London.

Panel discussions covered areas including the convergence (or otherwise) of reporting standards, the growth of ‘green-hushing’ and why biodiversity deserves some of the attention being showered on climate issues.

Below, we’ve gathered together eight takeaways and talking points from the conversations. For more information about the ESG Integration Forum, please follow this link.

IR Magazine talks to FRC's Mark Babington
IR Magazine's Steven Wade (left) talks to Mark Babington of the Financial Reporting Council

1. Investors want to see more ESG metrics added to executive pay
‘This is something that’s been bubbling up for years, but I think the pressure from investors has really ramped up in recent months,’ said Emmanuelle Palikuca, managing director and head of sustainability advisory at Alliance Advisors. As a case in point, she noted the recent announcement by Allianz that it would vote against directors at large European companies where no ESG measures are included in compensation plans.

2. The anti-ESG movement is a largely US phenomenon but there are global consequences
‘I don’t really see the same anti-ESG rhetoric or feelings in Europe that we’re seeing in the US at all,’ said Palikuca. ‘Part of that is because there is a more fundamental buy-in to ESG here in Europe. But even so, there certainly are global implications to what’s happening in the US – Vanguard pulling itself out of the Net Zero Asset Managers initiative, for example.’

3. The focus on greenwashing is spurring more green-hushing
The topic of green-hushing, where companies deliberately say less about environmental issues to avoid scrutiny, came up several times at the forum. Greenwashing allegations are ‘perhaps pushing us into green-hushing,’ said Carla Stent, independent non-executive director and board chair at Marex Group. She said the focus on greenwashing will help to make sure ESG reporting is robust, but if that means companies are ‘pushing some really good objectives further down and keeping them below the radar, I think that’s a shame, because we can all learn from each other through this.’

4. Boards need to be more discerning about materiality
‘One of the challenges for all companies – be they reporters in the EU, the UK or other jurisdictions – is that boards are going to have to get much more disciplined and discerning about what is material in the context of their company,’ said Mark Babington, executive director of regulatory standards at the Financial Reporting Council. ‘It may be an unfair parallel, but when I go and talk to filers in the US, boards are really good at saying, These four things are material in the context of my company, and I’ll report on those.’

5. The development of new reporting standards should be taken slowly
‘There has to be a degree of recognition that we are on a glide path, and that glide path won’t be as fast as some people want it to be,’ said Babington. ‘But actually, if what we want is reliable information that communicates how a company delivers its business and what its prospects are, how it deals with issues – like ESG – that matter to stakeholders, then it’s not going to be right from the outset.’

6. Amid the cost-of-living crisis, investors are scrutinizing how companies engage with unions
‘I think that [topic] is becoming quite important,’ said Elly Irving, director of stewardship for sustainable investing at Lazard Asset Management. ‘There are some leaders in this space and I would highlight looking at some of the frameworks created by UNI Global as a good example of how corporates can constructively engage with labor unions and avoid some of the challenges we’ve seen both here and in the US.’

7. Stand-alone ESG committees may not exist long term
‘I think there’s a lot of overlap with something as broad as ESG,’ said James Beasley, head of board advisory for EMEA at Nasdaq. ‘The feeling is that, as models mature, these things will become more embedded into governance practices we recognize, and that seem to work. So more strategic considerations around ESG will sit with the board… there’ll be that big picture understanding. The audit committee might look at the controls, policies and disclosures around ESG. The risk committee will look at risks as embedded in an enterprise risk-management framework. I think we’ll see more of that.’

8. Biodiversity reporting can catch up quickly with climate
‘I’d really like to see nature being a fast follower of climate,’ said Sarah Woodfield, active ownership manager at Schroders. ‘I can really appreciate and actually feel the pain when companies turn around and say, Look, we’ve just got our heads around TCFD – [and now] you want us to get our heads around the [Taskforce on Nature-related Financial Disclosures]. My key piece of advice is to look at the interdependencies and build off the existing governance frameworks you’ve already built to deal with climate, so we can really be quite tactical about this.’

Eight takeaways from the ESG Integration Forum