Is ESG seen as a key reputational driver in the boardroom?
Well, it’s not exactly knocking it out the park…
By Tarquin Henderson, Director and Head of ESG Insight Practice
As I stated in a post last week, each year Echo Research works with Management Today to compile and publish the Britain’s Most Admired Companies study. This is longest running survey of peer-group corporate reputation in the UK – now in its 31st year.
This week I have been taking a look at how the importance of ESG ranks against other reputational factors among senior business leaders – specifically CEOs and Chairmen, Finance Directors and Heads of IR, Marketing Directors and Heads of Corporate Affairs (or equivalent).
The chart posted here is a compilation of scores taken over the last three years from 250 separate businesses in 26 sectors. All are operating in the UK. Our chart shows the average ranking of scores across 13 listed reputational measures. In the 2021 results, which will be published in December, we will have a single ESG category. However, in previous years ESG factors have been split across ‘Community and environmental responsibility’, ‘Effective Corporate Governance’ and ‘Commitment to Diversity and Inclusion’.
So, what does this snapshot tell us? Here are a few takeaways to consider:
Unsurprisingly and most would say correctly, the consistently highest reputational drivers are attributed to factors such as quality of products and services and quality of management. Honourable mentions go to ability to attract and retain talent, financial soundness, capacity to innovate and inspirational leadership
Of these, it is quality of products and services which has been seen as the principal driver of reputation, ranking in the top three for every leadership group over the last three years. Above all else, it is your brands that principally drive reputation – and that is a subject all by itself for another blog.
But my interest is on the ESG reputational drivers across the three related categories (picked out by a red border). The story here is surprising given the tsunami of interest and perceived importance this topic has commanded over the last three years:
There is a steady upward trend in reputational importance, but from a pretty low base in 2018. That shows that there is an increasing acknowledgement that ESG is becoming a driving force across business, but…
It’s still only at best a middle ranking factor. Some would have us believe it is the ONLY important factor in a company’s reputation. Clearly some business leaders don’t yet see this, when compared to other drivers.
Of the three groups shown here, Finance and Investment professionals (CFO/CIRO) are the most reluctant to drink the Kool-Aid. Clearly ESG strategies need to demonstrate a more integrated value proposition alongside their drive for environmental and social good if they are to be perceived as stronger reputational drivers by senior finance professionals.
It is perhaps the responsibility of Marketing and Communications professionals to lead the charge and bring their senior colleagues along with them. Commercial and shareholder benefits have to be an integral part of any meaningful ESG strategy.
A Commitment to Diversity and Inclusion (which we only started to research in 2019) scored particularly poorly in its first year ranking 10th to 12th across the 13 categories by all professionals respectively. In 2020 it remains the same at a time when you might have thought it would be increasing. Was this down to the effects of the pandemic and a slight entrenchment into ‘core business’? I would say this is short-sighted and of particular concern.
When we publish the 2021 results with Management Today in December, it will be very interesting to see how ESG has performed. Will it continue to nudge up the league tables of importance in a year when we have been exposed to some pretty stark home-truths? The sustainability of our long-held business practices and their impact on our planet, our economy and society as a whole are very much in the spotlight.
My view is that there must be a balance. It is unrealistic to think that ESG is going to be THE most important driver of reputation… But, ESG is surely an increasingly relevant and critical part of reputation – even if the CFO doesn’t see it that way yet.
This month, we are launching a dedicated insight service to support clients understand the stakeholder impact and perception gaps of their ESG programmes. We offer bespoke and comprehensive insight among global financial, commercial and community stakeholders, often integrated with influencer insight analysis drawn from media and social platforms coverage as well.
To receive details of this new service, please contact contact Tarquin Henderson here.