When it comes to ESG, it’s Rule Brittania

The world is writing about the passing of Queen Elizabeth II, and indirectly so am I. What does her death have to do with ESG? I’ll answer that question in a moment, but here’s a clue: it has to do with policy and direct and indirect influence on corporate behavior.

First, let’s set the stage. A couple of recent surveys highlight disparities in ESG performance metrics among US companies and between US companies and the world, indicating that particularly US companies still have room to improve.

A 2021 study by Navex indicated strong ESG adoption across public and private companies, with 81% of participants saying their company had ESG programs in place while 63% of companies had increased focus and spending on ESG over 2020. But when asked to evaluate the effectiveness of corporate programs by focus, the results dropped precipitously. Only 50% of participants rated their corporate programs as very effective in the environmental arena, 39% highly effective in governance, and 37% effective in social matters. Despite these results (or perhaps due to them), 87% said their brand reputation was or is impacted by the company’s ESG performance.

European companies, however, are out-performing US counterparts both in voluntarily initiated ESG programs and in formal program implementation with 86% of French and German companies scoring well, 82% of UK companies and only 74% of US companies.

In additional to the operational level, European companies also lead in providing strategic guidance on ESG by forming dedicated Board committees to oversee policies and operations. Although the UK’s governance code, for instance, requires FTSE 100 companies to have audit, remuneration and nomination committees, there is no such stipulation for environmental, social and governance practices. Nonetheless, according to a recent Bloomberg article, 54% of FTSE 100 companies voluntarily have structured Board committees on ESG, while (according to Deloitte) only 13% of S&P 500 companies have done so. What this suggests is that European companies have embraced the strategic importance of ESG much more fulsomely than have US counterparts.

Or, as Maria Hughes, director at UK-based Mattison Public Relations said: “If you are a FTSE 100 company without an ESG committee at board level, then you are now in a shrinking minority.”

So, with all that said, what about the passing of Queen Elizabeth II and the accession to the throne of King Charles III? Well, as Prince of Wales, Charles was ahead of the global wave supporting and advocating for sustainable development and ESG principles. For over 50 years he developed and launched several important international initiatives, often in cooperation with organizations such as the United Nations. One such group, the Sustainable Market Initiative, has had broad but relatively shallow corporate support. According to their website 500+ CEOs pledged support for the so-called Terra Carta (a Bill of Rights for the Earth); 15+ CEO-led Task Forces have been established with 150+ global CEO members, and 47 global organizations have been awarded the Terra Carta Seal. Sadly, so far no mining companies are on that list.

Now that Charles is King, he is likely to redouble his efforts to advance sustainability and ESG, using one of the most important bully pits in the world – the British monarchy. And now that he is King, those efforts might attract broader and deeper support including – hopefully – from the global mining industry.

As for the US, companies have been improving but have a way to go. Particularly given new incentives from the USG and increasing scrutiny from investors and the public, US companies may rise to the challenge.

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3 responses

  1. Tracy Weslosky Avatar
    Tracy Weslosky

    Bravo Mel. Well done! Tracy

  2. Hugh Sharman Avatar
    Hugh Sharman

    As you rightly note, all the OECD’s banks and financial institutions are signed up to the UNFCC COP “accords”. This surely confirms that, at its root, ESG carries financial obligations?
    The IEA’s “net zero” publication, dated May 2021, “The Role of Critical Minerals in Clean Energy Transitions” makes it brutally clear that “net zero” energy and environmental policies will require a vast mining and refining programme to extract the “critical minerals” needed to deliver Global “net zero” primary energy in place of fossil fuels.
    Accordingly, being “ESG compliant” in mining and metal refining (for example) will require that the inhabitants of a place on earth from which minerals have been extracted and refined for some “good” purpose (of course), will receive financial compensation related by some formula (??) about which I am ignorant, for the social and environmental damage to which they have been subjected?
    Note the question marks, please!
    If so, perhaps you can explain why not a single ESG-sourced cent/€/£ ends up in the purchase price of (for example) lithium ion batteries, electronic devices powered by these and much more seriously in any EV, ever manufactured!
    Or am I entirely ignorant about the real meaning of ESG?
    I would be sincerely grateful for your explanation.

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