Sustainability considerations are becoming more and more important in the production and delivery of products, the procurement of raw materials, the activities of suppliers and the transparency of the supply chain. What all this means in practice will be discussed in a panel of corporate sustainability experts at the Effekteam (Budapest) conference on October 1. Effekteam interviewed ESG Core founder Attila Schillinger, who will moderate the panel. The following is a translation of the original piece available here in Hungarian.
For those who may not yet be familiar with this concept, would you briefly summarize exactly what ESG means, what is its essence, its significance for companies?
ESG is the modern age Noah’s ark for companies and boarding is happening right now. We face global challenges; at the forefront is climate change that calls for increasingly urgent system-wide solutions. This was first recognized in 2019 in the U.S. by the Business Roundtable, which brings together the leaders of the largest U.S. companies, and then by the World Economic Forum (WEF) when it was stated we are now beyond the view that companies must only focus on the short-term interest of shareholders, namely profit. The company of the future must instead serve a wide range of stakeholder interests, including the interests of its employees, suppliers, customers, its own environment, and its communities. ESG provides a framework for this, making this multifaceted activity data-driven and thus measurable in three areas: environmental, social and corporate governance.
ESG is a means to sustainability, not an end. ESG is Noah’s ark because those who do not enter today will not be able to meet the new double standard in the future: financial performance and positive social and environmental impact linked to financing. Roughly $ 30 trillion has flowed over the course of a few years into sustainable funds. This is almost a third of the world’s total assets under management. The sustainability tsunami has started. For anyone who has read the IPCC’s latest report on climate change, I think it’s clear why. We have little time and need to make fundamental changes in how we relate to each other and to our planet. That is why ESG is not CSR. It is not corporate cosmetics applied on the surface, but corporate genetics that brings profound changes in the collective ‘DNA’.
How do you see the activities of domestic companies in the light of the ESG? What are the needs, opportunities and challenges you are facing in this field lately?
Many professionals have become aware of the ESG ‘phenomenon’ and several have started preparing. Contributing to this was the change in the legislative environment, the publication of the first European Union legislation obliging certain market participants to transparently develop and report on their ESG activities. Mandatory corporate climate reports are coming. 2023 could be a watershed year in terms of ESG performance reporting. Until then, it’s worth preparing for what to report and ramp up performance. This means integrating ESG into corporate strategy, structures, culture, and the technologies used to collect data. There is very little time to make all this happen, so whoever hesitates will fall behind.
Creating managerial and organizational commitment to rapid and profound transformation is a major challenge in the domestic market. Hungarians have been enjoying the opportunity of a consumer society for about 30 years only. Cracks on the framework of capitalism have recently started appearing. The sanctity and possibility of constant growth is being questioned. Today, after 40 years of forced community existence (communism) people could enjoy individualism and finally see what is good for them personally. Instead, they are once again expected to think in the plural and see what is good for the community in local, domestic and global terms. Understandably, people are confused. What is the direction? Why should we change at the individual, corporate, and societal levels? They see others not yet moving. It’s tempting to search for excuses, but the clock is ticking. Our future goes up in flames, literally.
How have corporate practices changed internationally and at home recently? What scenarios are expected for ESG?
I always think in the ‘task-deadline-responsible’ triumvirate. In this area, ESG is a given task, an ongoing process with deadlines that can be measured in a few years in terms of implementation and start of meaningful reporting. More and more companies are appointing professional managers to lead the field. For the most part, rightly so, they employ a sustainability manager who is at best a member of the top management of the company, but at least accountable to them. Several leading companies have already started collecting ESG data. Some publish comprehensive ESA data and some already integrate ESG data with their financial report. The area is becoming increasingly integrated with finance, with the role of CFOs coming to the fore. ESG requires investments, where a more complex type of value creation must now be considered: financial, social and environmental return.
We need to find a way to solve our biggest challenges profitably. However, I find it dangerous that a uniform, global standard for measuring ESG has not yet emerged. Today we still often compare apples to oranges and it is easy to get lost in the jungle of standards. This also causes reputational problems, as greenwashing is common. Who ultimately decides whether a practice is really sustainable or is just labeled as such? This must be changed.
You will moderate the panel discussion, in which the participants will focus on the responsible procurement and supplier relations of the companies. What do you think can motivate companies to consider sustainability and responsibility aspects in these areas?
Once Noah’s ark, we are in this boat together. Take, for example, greenhouse gas emissions. A company with a turnover of billions may have only one central office with a small environmental footprint, but what about the manufacturing of its products, their transport, and the harmful emissions released during the production of the raw materials used? Or for a country, what if it is a leader in sustainability but finances it largely from fossil fuel exports? Where does the ‘outsourced’ environmental footprint matter? Where do we set the boundaries of an organization’s responsibilities? How can we drive our own ESG standards through the value chain? It is becoming increasingly clear that these are unavoidable issues and also an unavoidable responsibility that the company and its suppliers share. This perception is rapidly becoming reality through legislation. However, the keyword is not coercion, but the relationship that works or not between the company and its partners. I look forward to the conversation.