Putting the S into ESG
In September, FCM Meetings & Events hosted Ideas Exchange 2.0 where industry and business thought leaders discussed how Environment, Social and Governance issues are shaping business and travel. An expert in this field, Neil Pharaoh – Co-Founder & Director of Tanck, Non- Executive Director, Sustainability Victoria and Governance Lecturer, NIDA UNSW – spoke about what local businesses need to do in this space to catch up to the rest of the world. Here are some of the highlights from his discussion.
When talking about ESG factors, some are easy to define while others are less well understood. The ‘E’ being Environment is obviously about addressing issues like climate change, greenhouse gas emissions and waste, while ‘G’ for Governance covers things like bribery and corruption. However, as Neil Pharaoh explains, it’s the S, the Social, that is the next big focus for Australian businesses. ”It’s already big overseas and finally gaining traction here,” said Neil. “So, what is it? Everything from working conditions, child labour, labour standards, supporting local communities, how you connect with communities, conflict, employee well-being.”
In a business sense, the key factors are based around people. We’re talking about diversity and retention, training and employment, safe workplaces, OHNS and modern slavery. Naturally, the first step is supporting your own staff, but it’s also about looking at how the companies in your supply chain treat the people and communities they interact with.
Who you choose to do business with reflects on your own company. Just look at the banking industry, with customers and investors now questioning who their bank invests in and lends money to. They’re asking questions like do they fund fossil fuels and mining? Consumers are becoming more socially aware – especially Gen X, Y and Z – and they’re putting their money with companies that demonstrate good social responsibility. People are driving the change and businesses need to listen.
There have been many high-profile failures in the S space globally over recent years and they are big news. As Neil explained, $2 billion was wiped off Tesco's value when a profit overstate scandal sent shares sliding. Another example is the backlash against Volkswagen, when they provided misleading information about vehicle emissions. And recently, a group of Starbucks’ investors in the U.S. forced the company to change their CEO because of their anti-union positioning, worker rights and worker safety.
If you look at the global trends and stats around product boycotts by consumers, they are increasing. “They have grown year-on-year now for about 50 years and almost all of the boycotts, so I think it was about 80% of the boycotts, are based on the S,” said Neil.
Zeroing in on zero net harm
We’ve all heard about zero net waste and zero net carbon, which are very important, but the next horizon will be what's called zero net harm. Can businesses operate with zero net harm to their community and the communities they operate in? What does it mean for the way you hold events and activities or engage with your customers?
“It’s happening globally, and it's only a matter of time before it hits Australia,” explained Neil. “However, there are no agreed measures in the S space yet – so a lot of organisations use the United Nations Millennial Development Goals, now known as the Sustainable Development Goals (SDGs).”
These goals are aimed at reducing individual and community outcomes and impacts, by addressing S issues such as literacy, infant mortality and women's participation in the workforce. “Australia introduced the Modern Slavery Act relatively recently and we are probably one of the last countries to do it,” said Neil. “And Australia's bribery and corruption regime is now considered one of the worst in the OECD.”
So, what has the impact of these changes been for businesses? “Internationally, investors are now spending millions of dollars to make sure that this is accurate across their supply chains,” said Neil. “And there's whole groups of activist investors now looking at what they can do differently and how they can inform customers.” Another example of customers consciously choosing where to put their business is evidenced by the rise of industry superfunds – because they look after their members first, not investors. “And so, it’s something for your business to think about,” said Neil to the Ideas Exchange audience, asking “what is your S plan?”