On March 8th, Social Value International (in partnership with Impak Finance) hosted the first in a series of discussions that are making up #BeyondESGMonth.

This panel sought to understand the current ESG agenda, how we have got to where we are, and some of the possible solutions to the challenges ESG faces, and we were joined by:

Bonnie Chui
Fabien Courdec
Jelena Stamenkova van Rumpt
Paul Allard

Each of the speakers took some time to introduce themselves and their work, and what was clear from all introductions was the pace of change that we have seen over the last few years. The COVID-19 pandemic, Black Lives Matter movement and the climate crisis have all meant that the work of our panelists has become more interesting and relevant to people who before, may not have been so concerned or even aware of issues such as impact measurement and ESG investing.

The changes to ESG investing itself was also discussed, and Jelena noted how in the years since she started working in this sector, there has been a significant change. 10 years ago, there were investments that were considered ethical investments and that focused on impact, but as the move the mainstream ESG took place – where a business case could get put forward for ESG investing – the impact on people got lost.  

However, the biggest change that we have seen in ESG, as noted by Fabien, is that ESG has moved beyond the financial sector into something broader. When ESG as a concept was first developed, it was about managing risk to a portfolio but, the mainstreaming of the ESG – driven by the pandemic and climate change in particular – has meant that it is very difficult to point out and understand the core characteristics of ESG as, in many cases we do not know what ESG is today in people’s minds…something that was reflected by all speakers in this panel.

This challenge was one of the many characteristics of ESG that the panelists unpicked during the discussion. Other main challenges include:

• ESG remains focused on single materiality

• ESG reporting remains unregulated and unaudited – which has meant that ‘greenwashing’ or ‘SDG washing’ is often seen as key characteristic and result current ESG practices.

• A lack meaningful data  

• “E”, “S”, and “G” being viewed individually and not in a holistic manner.

It was also noted that because of the above challenges, current ESG investing is not bringing the value that investors wanted to see, and Jelena noted that we might be seeing a turning point towards double materiality. The move towards double materiality is something that SVI has been strongly advocating for, and as a network and global community we are in a unique position to help support this move as we have, for the last 15+ years, been measuring the impact that activities have on people and the planet.

Another change that is needed to be seen, and one that Social Value International strongly supports, is the move to regulation and auditing. As noted, we have strong financial regulation and audit and yet time and time again, we see examples of businesses trying to get around this audit, so imagine how dishonest it must be within ESG reporting! Without any auditing and regulation ESG investing and reporting is “the wild west”. To overcome this challenge, and to create trust, impact data needs to be considered as important as financial data, and subject to the same level of rigor and this needs to be verified by a third party – something that SVI advocates for in the Principles of Social Value, Principle 7: Verify the result.

Today, the industry is at turning point and consumers have a huge amount of consumer power. The rise in awareness regarding ESG over the last few years, demonstrates just how strongly the concept of ESG now belongs not just to the financial markets but also to consumers, and the purchasing decisions and power of these consumers will shape the future. The businesses that will succeed in the future, are ones that operate sustainably and are able to effectively communicate their impact with their consumers, and the financial markets will respond to this. As Fabien noted, it may take 5-10 years for the financial markets to catch up, but for those who are eager for more rapid change there is still much more that can be done!

The professionalization of impact management, the training and skills building of a new generation of ESG Investors and practitioners and pushing for audit and verification of impact data will all have impacts in driving forward the ESG agenda. The creation of the ISSB, despite of its challenges, shows that the financial markets are taking this more seriously, that regulators are standing up and taking action. The rhetoric we are seeing is encouraging, and over the coming 2-3 years we have a unique opportunity to really transform this agenda but what is most important, is that we must no longer see the rhetoric remaining as rhetoric and instead see action. As Paul noted, the time is NOW.