How Stakeholder engagement can help solve the global CSR and ESG concerns

In the past 5-10 years, stakeholders have taken the corporate temperature on various key CSR and ESG issues and addressed some significant concerns. Now they hold the board and management accountable as the ‘E’ in ESG – must incorporate double materiality; businesses must report not only on the impact of climate on their companies but also on their businesses’ impact on climate.

No time to wait for the data

Investors and policymakers are increasingly decisive for management to act on climate change as long overdue, and the industry should not use a lack of data as an excuse. The good news is that most companies slowly appear to be accepting what researchers have said for a decade: we do not have time to wait for the metrics and information we would like, and limited action is better than no action.

The directors and senior management also need to accept that there may never be data for some existing services or values of nature or issues like climate change. We must admit there may never be enough data in some cases and too much-unstructured data that can provide any value. Lack of data is frequently cited as an obstacle to sustainable investment to finance emerging areas such as biodiversity.

Accept it and work with imperfect data.

Management may not have all the data they want to perform climate stress tests. However, given the urgency of the climate crisis, we must work with what data is available.

Investors are holding companies to account on climate policies, the continued lack of sufficient sustainability data, and whether the market will ever converge on agreed ESG reporting standards.

A lack of data is no excuse for inaction. When management addresses the exposure to biodiversity risks and gets started, even though only insufficient data is available, management needs to learn by doing.

Engagement washing is a global issue.

Discerning investors are active, involved and engaged and play a vital role as the central driver of a business’s CSR/ESG investment thesis and return profile. Bespoke CSR/ESG action plans are constructed to address the most material CSR/ESG issues to unlock hidden value and drive greater market recognition of the successes. Shareholder and stakeholder engagement is crucial in holding companies accountable for climate and related policies.

While shareholder engagement can be an effective tool to achieve change in companies, the obligation is on asset owners to ask better questions of their asset managers. Asset managers must precisely articulate their role in all active CSR/ESG engagement and fully understand the decarbonisation path of their portfolio companies.

More sector guidance from the EU’s Taxonomy of sustainable activities will lead to more effective stakeholder engagement, help investors understand the milestones that companies in all business sectors, and help steer investors and set success factors for the CSR/ESG achievements.