Purpose on Payday

By Sophie Morello

Governance as an ESG issue has leapt back into the spotlight, following the tragic events in Ukraine.

As a result of the Russian invasion and the sanctions now being imposed by other countries, there will be renewed attention from media and activists on the investors and partners that businesses have and we are already seeing evidence of increased levels of scrutiny, with BP being one of the first large-cap listed businesses to have its links with Russia questioned.

In reality the complex web of financial relationships and intertwined nature of global trade means that many organisations will have links to Russia which they will now have to reassess. Understanding the ownership structure and investment profile of organisations you partner with is now firmly back in the spotlight.

We are also seeing an increased governance focus on climate pledges. There has been a constant stream of climate targets set by corporates, now the focus is on whether organisations are achieving real impact against these.

Greenwashing and the failure to meet targets is a significant reputational risk and more organisations are being called out for failure to deliver.

This month Morningstar, the data provider, dropped over 1,200 fund from its European sustainable investment list following an “extensive review”. Funds with “light or ambiguous ESG language” got the chop, and more are expected to follow.

And consumer brands will want to keep an eye on Which?, which published its first sustainability ranking of 11 UK supermarkets, scoring them against greenhouse gas emissions, plastic waste and food waste. Some of those listed challenged the results, including Iceland, which scored poorly despite some bold commitments to cut out plastic packaging from own-brand products.

There was also a report from The New Climate Institute and Carbon Market Watch which assesses the climate strategies of 25 major global companies and critically analyses the extent to which they demonstrate corporate climate leadership, scoring them based on the strength of their pledge, transparency and integrity. Companies under the spotlight include Apple, Amazon, Ikea, Accenture, Nestle and Unilever – no one scored ‘high’.

Reports such as these will keep on coming and the governance attention required to align ethical, environmental and social goals against the reality of operations on the ground is extensive. ESG targets are a useful statement of intent but impact and outcomes remain the critical measure of success.

We have also seen signs this month, of how November’s critical COP27 UN Climate Change Conference, in Egypt, is likely to shape up. Alok Sharma (President of COP26 who remains in place until the start of COP27) and John Kerry (the US Special Presidential Envoy for Climate) are both embarked in shuttle diplomacy to try and keep the goals agreed at COP26 on track.

Yet reports suggest that Egypt will be prioritising the ‘just transition’ and the delivery of the long-promised climate finance package from the G20 nations which will see $100 billion a year in climate finance aid being paid to developing nations to help them invest in the renewable and low carbon technologies needed to transition their economies to a net zero future.

It is possible that the crisis in Ukraine could focus G20 minds on the need to strengthen international ties and friendships and delivering this long-promised aid would be a good start.