ESG needs to be a lens

What is your professional background and what are your day-to-day responsibilities?

My name is Fiona Gaskin and I am ESG Leader for Assurance and Reporting with PwC.

I’ve worked in PwC for over 20 years, specialising in risk management, controls and transparent stakeholder reporting which includes non-financial reporting. I’m a Fellow of the Institute of Chartered Accountants, an Internal Auditor, an IT Auditor and I also hold a Masters in Sustainable Energy Finance.

How has the Covid-19 pandemic affected your ESG reporting?

We help many organisations with their ESG reporting. What we have noticed since Covid-19 is that more social issues are being considered as part of the materiality assessment, which up to this point were being overshadowed by an environmental focus and in particular a focus on climate change. Social issues include things like diversity and inclusion, safe work environments, human rights and fair labour.

What do you think are the implications of the war in Ukraine?

In terms of the ESG agenda, while it might initially delay some focus as organisations grapple with some practical implications of the war, it is also a driver for companies to take that wider look at society - what’s acceptable and fair, and what is not. The war is putting added pressure on businesses and society to decrease the dependence on fossil fuels and therefore ultimately more sustainable business operations.

How should corporations navigate the ever-changing landscape of ESG?

The short answer is they need to be prepared to adapt and change strategic direction where necessary. Firstly, they need to know what topics material to them are - there is no point focusing on one key area and ignoring others. For example, it's difficult to argue that an organisation's emissions are not material if you have not actually measured them accurately in the first place. That’s the type of action which will lead to claims of greenwashing. To successfully identify those material topics there needs to be buy-in at the Board level, and ESG needs to be a lens which is applied to the core strategy - not bolted on to it. Organisations also need to be aware of their stakeholders’ expectations, and that includes being prepared for mandatory reporting and assurance.

What do you feel are the biggest hurdles to effective ESG reporting?

•Lack of buy-in or understanding of the topic from the leaders of the organisation.

•Inability/unwillingness to identify and report on the material issues.

•Inability to embed ESG within the organisation, e.g., in how decisions are made or in how goods are produced.

•Lack of robust data to adequately measure progress. This means ESG targets are not being tracked or linked to remuneration, which ultimately then affects point one above regarding lack of buy-in from leaders of the organisation.

In your opinion, what are investors’ primary goals when approaching ESG? Risk management? Uncovering opportunities? Meeting disclosure requirements?

At present it would be an element of all three. The EU’s Sustainable Finance Disclosure Regulation (SFDR) has imposed disclosure requirements on investors with the aim of providing transparency around how they are managing their ESG risks, how they are promoting ESG characteristics, and providing a framework to allow for comparability across investment products whilst also eliminating greenwashing. That’s the regulation piece. There are also the opportunities arising from investor demand for ESG products providing significant opportunities to develop investment products which satisfy this investor preference. For example, inflows to ESG funds exceeded inflows to non-ESG funds by 15% between the end of 2018 to April 2020 relative to their assets under management.

Where will ESG investing be by the end of the decade?

We have seen a huge transformation and growth in ESG investment driven by both investor demand, and by regulation. As a result, we have seen ESG investing become mainstream, whereas previously it would have been quite niche. ESG investing looks at the risk of the E,S and G factors for a business and how that business is managing those, or whether they are identifying opportunities. As investors become more comfortable with those concepts and how they are being reported, and as society continues to demand more ‘responsible capitalism’, we expect to see the market evolving with sustainability, rather than ESG, more in focus for investors. The main difference in having a broader ‘sustainability objective’ over promoting ESG characteristics is that it also looks at the investee company’s effect on the outside world and whether that is having a positive or negative impact. With that will come more focus on impact investing, and thematic investing approaches such as providing funding towards the disruptive and innovative technologies required to get us through the transition to net zero. ESG is quickly becoming a mainstream approach for the alternative investment market too with private equity, private debt, and infrastructure investments all looking to build ESG requirements into deals due diligence and investor reporting as starting points.

What are the challenges of effectively communicating your company’s “ESG story” to all stakeholders?

There is a wide range of stakeholders, and they often have different requirements. It can be challenging to communicate how you have considered ESG as part of your core strategy and demonstrate that it is embedded in the business - in other words, to articulate a credible and authentic story. Due to the wide range of reporting obligations, there is a real risk that the key ESG related messages get lost in the detail of what can be very long annual or sustainability reports.

Fiona Gaskin is speaking at The Business Post’s 2022 ESG Summit on May 31st in Croke Park www.esgsummit.ie

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