ESG metrics take centre stage at Davos 2020

Today, more than ever, the impact of humans on the environment can be clearly seen in the massive growth of cities across the world, the clearing of forests for farming and the foreboding climate crisis, among many other things. With these ongoing crises, the focus for socially conscious investors now is on sustainability.

At the recent World Economic Forum Annual Meeting Davos 2020, the yearly get together of the world’s richest and most powerful people, in Davos, Switzerland, the theme was “Stakeholders for a Cohesive and Sustainable World,” with the main focus on environmental, social and governance (ESG) metrics. For those of you who don’t know what ESG is, it refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies. ESG investing seeks to quantify risks that can’t be measured by traditional financial metrics.

And interest in ESG has soared in recent years. The relatively new type of investing covers everything from labor practices, energy conservation to alleviating poverty, all in the interest of sustainability and using capital for good.

In a bid to really push ESG, in January 2020, prior to Davos, Laurence D. Fink, the founder and chief executive of BlackRock, the world’s largest asset manager with nearly US$7 trillion in investments, said in a letter to CEOs that BlackRock would begin to exit certain investments that “present a high sustainability-related risk”. Fink is trying to encourage every company, not just energy firms, to rethink their sustainability strategy, which will fundamentally shift investing policy and put pressure on other large fund managers to follow suit.

The recognition of the positive impact of ESG activities on a company’s business operations and value, as well as the increasing demand by investors for more information on how companies manage their ESG risks, has resulted in a rapidly changing global regulatory landscape in ESG matters, according to a report by Hong Kong Exchanges and Clearing (HKEx), the operator of the city’s stock market.

We now see many institutional investors embracing more ambitious strategies around sustainability. For example, in December 2019, 631 institutional investors from around the world, managing more than US$37 trillion in assets, urged governments to step up efforts to tackle the global climate crisis and achieve the goals of the Paris Agreement, in a joint statement issued at the United Nations Climate Conference (COP25).

In Hong Kong, however, a survey of 500 randomly chosen ESG reports on or before June 30, 2019 showed that only 39% had fully disclosed their environmental key performance indicators under current “comply or explain” standards, and only 12% of them outlined plans to deal with climate-change issues, according to a study conducted by BDO Hong Kong. To help combat the problem of companies failing to report required ESG measures, HKEx will make disclosures on climate change and social issues mandatory from 2021. The new requirements will be imposed on companies whose financial years begin on or after July 1, 2020. HKEx made environmental disclosure obligatory in 2017.

Some companies have, however, already started embracing ESG initiatives, such as Ping An, Alibaba and Huawei. Take Ping An for example. The Chinese conglomerate presented its ESG investment strategy of smart poverty alleviation at Davos. Ping An has developed various poverty alleviation models for specific industries, such as the Ping An “Poverty Alleviation Insurance Scheme”. To date, this model has already supported 70 projects in 13 provinces in China and provided a poverty alleviation fund of RMB490 million in total, which has increased the annual per capita income of 46,000 low-income people by more than RMB2,000.

At Hill+Knowlton Strategies, in light of companies placing more emphasis on ESG metrics, we have created H+K Better Impact™, which is a tailored performance strategy to empower businesses and brands to have a better impact on people and the planet. Our holistic approach includes a unique Score/Act/Consult/Partner process that helps businesses zoom in on the best areas to target for their sustainability endeavors.

Score

An ongoing benchmarking against the UN Sustainable Development Goals, identifying the goals that most align with a business’ performance, stakeholder values and brand purpose. A nimble yet effective process, presented in a robust report within 6-8 weeks.

Act

Building on the recommendations of our Better Impact™ Score to create and deliver strategies that ensure a company’s communications are credible and authentic. It’s our way of empowering and enabling brands to have a Better Impact™ on people and the planet.

Consult

Expert consulting to engage a brand’s audiences on the issues that matter to them, to create lasting preference and real-world positive impact. This either compliments the Better Impact™ Score and Action or are standalone communications campaigns.

Partner

Collaboration and partnerships play a critical role when companies, governments and cities wish to drive sustainable growth. Partner ensures the right partnerships are in place to drive your sustainability agenda.

Joanne Lam is a Senior Director in Financial Communications at Hill+Knowlton Strategies Hong Kong

Andrew Scott is an Editor / Writer at Hill+Knowlton Strategies Hong Kong