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Organisations lack ESG understanding, report says

Businesses are feeling under pressure to become more 'sustainable' as many are confused about what changes to make, according to HSBC's new survey.

According to a new HSBC survey, just 4% of businesses have a clear understanding of how they are performing or how Environmental, Social and Governance (ESG) metrics might apply to them, despite sustainability now being firmly on the agenda for businesses of all sizes.

These are among the findings of a new HSBC survey, ‘Navigator: Now, next and how,’ that explores the views of over 9,100 companies in 35 countries and territories between August and September 2019. It shows that almost all businesses (96%) are feeling pressure to become more environmentally and ethically sustainable, but many are struggling with barriers such as their ability to finance change (35%) and to free up resources to implement that change (31%).

Over a quarter (27%) of businesses say they are frustrated by a lack of consistent ESG measurement criteria, meaning they aren’t sure what to focus on. Moreover, there’s a consistent gap of up to 10 percentage points between ESG indicators companies do identify as relevant and those they actually measure.

Barry O’Byrne, CEO of HSBC Global Commercial Banking, said: “People want to know the values of the businesses they buy from and market pressures mean every business must demonstrate it has a positive effect on the communities in which it operates. But translating sustainability ambitions into measurable practices isn’t easy. You don’t have to look far to find ESG guidance from organisations ranging from the UN to stock exchanges. Identifying which guidance might apply to your business is a challenge for management teams and our Navigator findings show that progress towards common reporting frameworks would clearly be welcomed.”

HSBC’s Navigator report comprises a global survey gauging business sentiment and expectations on trade activity and business growth. Research was conducted by Kantar for HSBC.

Sustainable future

According to the report, a key priority for high-growth companies is pursuing business growth and change in a sustainable way, and European businesses are keenly invested in driving sustainability. Companies in Europe continue to implement sustainable practices with a range of motivations: to improve operational efficiency, to meet buyer expectations (both 24%), to meet regulatory standards (23%), to grow sales (22%) and to gain a competitive advantage (21%).

These key motivations are consistent with the picture globally. Companies in Europe are feeling the pressure to become more sustainable in the next five years from end consumers (35%), governments (32%) and competitors (30%). But they face the same challenges as firms worldwide – the extra finance needed, the work and time it takes to revamp their business and the lack of consistency in measurements and reporting frameworks from governments and regulators.

Also, over the next five years, businesses in Europe expect to invest more in reducing waste generation through prevention, reduction, recycling and re-use (29%), technology, innovation and infrastructure to improve sustainable production (27%), promoting employee health, wellbeing and safety (26%) and improving energy efficiency and sourcing more clean energy (25%).

The report recommends the following measure for businesses working towards sustainability goals:

  1. Reduce waste generation through prevention, reduction, recycling and re-use – the top investment priority for delivering sustainability among firms in Europe (29%).
  2. Invest in technology and innovation. Technology is seen as key for improving sustainable production and monitoring the supply chain for greater visibility and traceability.
  3. Embrace sustainability as a business strategy. The data shows that successful companies see sustainable practices as vital to business’ long-term survival.

Implementing changes

While 26% of businesses want to become more sustainable to improve their efficiency, and 23% think it will help boost sales, 15% are measuring their energy use and 8% their carbon emissions. In terms of social and governance metrics, 13% say they measure the fair treatment of employees and 14% track the effectiveness of their anti-bribery and corruption controls.

Pressure to do more on sustainability is coming from multiple sources including competitors, investors and employees, according to the survey. Businesses in Indonesia (47%), the UAE (46%), Australia (43%), Turkey (43%), South Africa (41%) and Singapore (40%) say they feel the most pressure from their governments, while peers in Argentina (49%), Russia (46%), Brazil (45%), Poland (45%), South Korea (44%) and Thailand (41%) say it’s their customers that are leading the call for change.

Over the next five years, a third of businesses expect to invest more in technology, innovation and infrastructure to improve sustainable production. The focus for 31% will be to promote employee health, well-being and safety, while for 29% it is to reduce waste generation and improve energy efficiency.

ESG reporting and guidelines

ESG reporting, in the EU, has garnered significant interest from investors and as such continues to have a growing direct and indirect impact on the remit of corporate treasurers.

There is a plethora of ESG guidelines, including guidance from a number of stock exchanges and ESG reporting frameworks from standard-setting bodies such as the Sustainability Accounting Standards Board (SASB). The UN provides Principles for Responsible Investment, but there is a spectrum of different impacts and activities that companies might want to measure.

HSBC publishes an Environmental, Social and Governance Update on an annual basis. In 2020, publication will be alongside its Annual Report and Accounts.

HSBC’s Navigator helps businesses capitalise on new opportunities and make informed decisions for the future by understanding the outlook for international trade. The Navigator: Now, next and how report for Europe can be downloaded here.

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