How is COVID-19 Influencing Corporate ESG Integration?
In the latest research paper conducted by CSR Europe and the Italian Association of Financial Analysts (AIAF), we explored how ESG integration is being undertaken by companies in practice and how did Covid-19 impact it.
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Together with the Italian Association of Financial Analysts (AIAF), CSR Europe published the research paper “ESG Integration at the Times of COVID-19”, assessing the current state of play of Environmental, Social, and Governance (ESG) integration to understand:
how existing metrics can reflect companies’ contribution to sustainability
how coronavirus outbreak influenced the integration of ESG data in corporate reporting
The study involved companies representing the Energy, Cement, Chemical and Oil & Gas sectors as the global transition towards a more sustainable economy will strongly depend on their evolution and transformation to a low-carbon model. The interviews have been conducted on a voluntary basis using a questionnaire based on AIAF’s elaboration of the ten environmental metrics proposed by the World Economic Forum and Nasdaq’s ESG Reporting Guide.
Here are key trends emerged from the study:
1. Board and management interest in sustainability is growing.
All sustainability topics are taken into consideration when reviewing and guiding strategy, major plans of action, risk management policies, annual budgets, and business plans. In some cases (Solvay) the company updated its governance charter to have a specific chapter on sustainability and how they manage it every Board meeting. In other cases (Total) the CSR Committee of the Board discusses the strategy and the plans of action, while an Executive Committee (Senior Management) put in practice the sustainability strategy of the group examining new projects and current affairs after the approval of a Risk Committee. To better reflect the growing commitment of a company, Titan suggested the inclusion, in ESG reporting, of metrics to assess presence of trainings on sustainability trainings for managers and top management.
2. ESG are interconnected and we must not think in a logic of separate silos.
The COVID-19 crisis has its origin in the loss of biodiversity, rapid urbanisation, increase in population levels and increased contact between humans and animals due to deforestation and bush meat markets. As a result, we need a systemic resolution approach that looks at the different dimensions of long-term sustainable development.
However, such an approach is challenging to pursue because social metrics are scarce and thus difficult to measure compared to metrics for climate and the environment. Companies underlined the need to connect better the different elements of sustainability to be able to ensure a just transition and an inclusive recovery from the coronavirus pandemic. In the case of Enel, the corporate reporting framework provides different documents, also digitally connected, that provide the same information with a different degree of details according to the audience.
3. A dynamic approach to ESG is crucial to understand which metrics will survive the current pandemic crisis.
What is financially irrelevant today for a company or sector can become material tomorrow. Investors and companies must adopt forward-looking and proactive approaches to materiality to better identify dynamic ESG issues and incorporate them in the investment or management processes.
The EU guidelines invite to consider a double materiality for the assessment of the relevance of non-financial information:
Information relating to the climate communicated if necessary, to understand the performance of the company, its results, and its business activity.
Information relating to the climate must be communicated if necessary, to understand the external impact of the company’s activities.
Having a strong and resilient sustainability strategy today is necessary to face future challenges like climate change. This is why CSR Europe continues to support companies in better integrating sustainability in the business model through a various range of tailored services including report reviews, materiality assessment and stakeholder dialogue – all tools updated to allow both safe in-person and virtual engagements.
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