The future of business has changed since COVID-19. In the new "reputation economy”, companies are judged on their ethics, their social purpose and their Environmental, social and governance (ESG) record. That was the overriding message at the New York Stock Exchange’s‘ Reputation Economy’ event on Tuesday 17 November 2020.
The panel discussion began seconds after the closing bell of the NYSE. As has happened with rising frequency in recent months, it was yet another good day of trading for ESG stocks and companies with a demonstrable commitment to ESG. Opening the conference, the NYSE’s Head of Listings, Chris Taylor commented on this major investment trend of 2020. “With the continued rise of ESG investment, in dealing with a global pandemic, this means reputation management and reputation risk are more important than ever today,” he said.
ESG investment has hit record levels this year. The Financial Times reported that ESG funds received a net investment of over $70 billion between April and June -against the backdrop of global markets falling sharply.
The benefits of a focus on ethics and ESG
Conference-goers heard that investors are becoming louder in their calls for companies to improve their ESG record. EzgiBarcenas, Global Vice-President for Sustainability at multinational drinks and brewing company ABInBev, said investors and ratings agencies have heightened their expectations around ESG in recent years. “Through the pandemic we have seen growing interest on ESG disclosure and transparency from our invest or base,” she said. “People are asking sophisticated questions and looking for context before they offer a rating.” If your company is ignoring ESG, investors will start asking serious questions or even take their money elsewhere.
Panelists agreed that ESG is not just the right thing to do, but it is the most profitable way for companies to do business. “We are now in a position where companies cannot just have product excellence to succeed,” said Stephen Hahn-Griffiths, Vice-President of the Reputation Institute. “Companies are no longer only valued on traditional criteria like product excellence, but on their ethics, how morally they conduct their business affairs, ESG - all of these things are on a watchlist of every company.”
Catherine Hernandez-Blades, ESG Advisor at the US insurance company Aflac, added: "Companies that do good do better in terms of their financial performance. When sustainability and ESG are done in an authentic way, they can drive innovation and growth.”
Having an ethical approach and a social purpose can also help a company to manage reputational risk.“ It is very complicated to navigate the choppy waters of the new reputation economy,” said Stephen Hahn-Griffiths. “We are one negative Tweet away from a crisis.” Having a social purpose and clear values can help to reduce the risk of developing a negative reputation. JoshKing, Vice-President of Communications at Intercontinental Exchange, said customers, investors and the general public demand to know whether a company “maintains high ethical standards” and “shares my values in support of good causes”. “Consumers are expecting us to stand for something and have a voice,” EzgiBarcenas added.
Get the right data to assess ESG credentials
Another theme of the conference was the difficulty of assessing which companies really are making a positive impact on ESG criteria. Some companies and investment funds have been accused of “green-washing - claiming to be ESG - friendly in their press releases and annual reports but contradicting that in their actions. There is also widespread disagreement over how to measure ESG. “The world needs a new standard for ESG measurement because rating agencies have different ways of rating ESG,” said StephenHahn-Griffiths. “Who is to be believed?”
So how should investors and consumers make decisions about which companies are truly committed to ESG?In addition to checking ESG indexes, investors can surface potential risk issues related to ESG factors with relevant data and technology. Nexis® Solutions can help.
Use an adverse media feed to power predictive analytics or integrate into risk management tools to gain valuable insights into potential regulatory, reputational, financial, and strategic risks facing companies. If a firm has been criticised for its labour or environmental record in a particular country, for example, this might call its ESG commitment into question.
Review Critical Mention broadcast content to capture the full context of a company’s position on ESG issues. While a newspaper headline might cherry-pick a single quote from a CEO, a transcript of the full interview may help establish the extent of a company’s ethical approach and ESG commitment.
Tap into data spanning PEPs, sanctions, watchlists, and blacklists to identify potential regulatory misconduct by firms and the third parties with whom they do business. For example, is a firm claiming a commitment to ESG using suppliers that been convicted of damaging environmental or labor practices?
Explore how Nexis Solutions helps companies address ethical expectations with access to an unrivaled source universe via powerful platforms for conducting due diligence and third-party risk monitoring and via flexible data APIs.