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What’s next for ESG? Perspectives from 3 experts

February 24, 2023

This panel discussion, hosted by Economist Impact, provides insights on the evolution of ESG.
Climate|ESG and Sustainability
Climate Risk and Resilience|ESG In Sight
What’s next for ESG? Perspectives from 3 experts

Hear different insights on the keys to getting ESG right in this panel discussion video hosted by Economist Impact.

In this video hosted by Economist Impact’s Martin Koehring, three experts discuss the pushback against environmental social and governance (ESG), how regulators are affecting what companies are doing in terms of ESG, the role of ESG ratings and the importance of stewardship.

Martin Koehring, Economist Impact senior manager for sustainability, climate change and natural resources was joined by:

  • Katie McGinty, vice president and chief sustainability officer, Johnson Controls
  • Monique Mathys-Graaff, senior director and head of sustainability solutions, WTW
  • John Bremen, chief innovation and acceleration officer, WTW

Highlights from the discussion included:

  • “E, S, and G affect every component of our lives as organizations and as investors, and it impacts asset owners, even economies and governments. But each of the components of ESG that influence us as individuals, corporates and investors are moving at different paces.
    “However, if we stay anchored around our core economic activities, our core purpose and our governance, we have a framework to ensure that our strategies are more responsible, more responsive to E, S and G. That will enable us to focus on real outcomes and not get overwhelmed by the details.” — Monique Mathys-Graaff
  • “There are three strategies or tactics that companies employ that help ensure you’ll get ESG right. First and foremost, boards, investors and key stakeholders need to ask the tough questions. Even though ESG is still so young, we now know so much more than we did even a couple of years ago.
    “Second, we need to have a set of specific defined and codified metrics around what we're trying to achieve. If we can't assign metrics and measurement to what we're trying to achieve, we will go around in circles forever, talking a good game, but not achieving it.
    “And third, we need to hold people accountable. But we have to be clear who we're holding people accountable to and what we’re holding them accountable for.” – John Bremen
  • “ESG, sustainability and climate are no longer periphery issues, if they ever were. They are performance central, performance relevant and performance essential.
    “Don't be distracted by the cacophony. Drive with your organization’s purpose in mind to understand how ESG will transform your business, and then run after it positively.
    “Doing so will bolster your bottom line, burnish your brand and fire up your people when you put them to this purpose that will drive and grow your organization and take it to whole new heights. It's here to stay, and it's here to lift your business if you go after it with affirmative purpose and determination.” – Katie McGinty

To get more insights on ESG from these three experts, watch the video.


Pushing back, moving forward. Understanding the evolution of ESG

SPEAKER: Welcome to WTW's ESG In Sight Spotlight Series.

MARTIN KOEHRING: Hi, Everyone. My name is Martin Koehring. I'm economist impact senior manager for sustainability, climate change, and natural resources. Assets integrated ESG criteria grew from $30.6 trillion in 2018 to $35 trillion in 2020. So now they make up a third of global assets under management. And they are on track to surpass $50 trillion by 2025.

However, as many of you know, there has been a pushback against ESG recently, centering around accusations of greenwashing, greenwishing. So Economist Impact has recently published a study entitled "Pushing Back, Moving Forward" to understand the criticisms of the concept of ESG, and use them to improve and strengthen it and its application. So the study is supported by WTW. And as part of the report, we interviewed a range of ESG critics and advocates as well.

So our study found that a re-examination of roles is needed to achieve greater progress. That includes the role of individuals, of shareholders, and also end users and voters, but also the role of the financial services industry as guardians of both their client's money and of market integrity, and also the role of corporate boards as responsible governance with a fiduciary duty, not just to shareholders, but also a wider range of stakeholders, and then, finally, of course, policymakers as well, and regulators, as the shapers of corporate behavior. So these different stakeholders, they may move at different paces in different regions, but the direction of travel needs to be the same.

So we're very excited to welcome you to this virtual panel conversation to discuss the findings from the study. So I'm joined by three experienced panelists. So first of all, we have John Bremen. He's chief innovation and acceleration officer at WTW. We have Monique Mathys-Graff. She's senior director and head of sustainability solutions at WTW. And last, but not least, Katie McGinty, vice president and chief sustainability officer for Johnson Controls.

So I'd like to divide today's conversation into three main parts. First, I'd like to explore the latest pushback against ESG in the context of priorities for 2023. This will include looking at true impact against the backdrop of increased scrutiny around greenwashing and greenwishing, as I mentioned. Second, we'll explore the latest regulatory developments. And finally, we will discuss the role of ESG ratings, and ratings agencies themselves, and the importance of stewardship.

So without further ado, let's get started. So Monique, I'd like to start with you. I mean, you have more than 20 years of experience in investment strategy and also sustainable product development within pension funds, asset managers, investment banks, and also corporates. So as business and leadership in leadership teams, both for business and investors, and to the 2023 start of the year in terms of facing these kind of inflationary pressures, but also as you know, there's a looming recession.

And of course, sustainability of businesses matter more than ever in this context. So how can our new study assist them in determining priorities, given the highly diverse stakeholder concerns on E, S, and G matters? Monique.

MONIQUE MATHYS-GRAFF: Thanks, Martin. You may well have asked me to solve world peace.



MONIQUE MATHYS-GRAFF: Indeed, these matters are complex. And the significance of the report is that it allows leaders to take a moment to zoom out to understand that all of these multiple factors, at the end of the day, is really helping you to determine your organizational purpose in context of all of these moving parts. It takes a look at the significantly changing and fast changing regulatory environment we find ourselves in. However, to do it in a way that still anchors to your core purpose as an organization.

I like to use a bit of a silly analogy. But if you're a fruit, you can't suddenly change being a fruit because climate is getting warmer, or because the social right. Similarly, if you're a car manufacturer, you can't suddenly be something else because the environment around you is changed. What we've tried to do in this report is take a step back and cut through a little bit [INAUDIBLE].

Identify the key challenges. Think about the roadblocks, and allow leaders to look through the current noise and understand, therefore, what is the environment we're moving into? In the context of the purpose of my organization, where and how do I, therefore, pivot? And what are the key considerations to achieve that and problem solve through?

E, S, and G affect every component of our lives as organizations, and as investors, and all the way through to asset owners, even economies and governments. But the pace of change of each of those components that influence us as individuals, and corporates, and investors are moving at different paces.

However, if we stayed anchored around the core economic activities and our core purpose we're delivering on, and we systematically work through our governance to enable a greater ability to digest that, if we work on our strategies that are more responsible, more responsive to E, S, and G. And if we ensure that we can focus on the real outcomes, not getting overwhelmed by the details.

If I'm a fruit farmer producer, I can ensure that I improve my value chain. Let me do that. If I'm a car producer, I can definitely ensure that I'm creating lower emitting vehicles. If I'm an investor, I can certainly ensure that I'm meeting net zero goals. There are things that we can do in the context. And so we hope we've brought to the surface the key areas longer term that one needs to solve for, while remaining true to the core purpose and strategies in each organization and leaders' life.

MARTIN KOEHRING: Amazing. Thanks a lot, Monique. And we're almost there. We've almost solved world peace through your answer. But it's still an evolution. It's still a journey. And you mentioned something that's really powerful, which is looking at the organizational purpose as a starting point, but then there's this need to look through the noise. And there has been a lot of noise around ESG. It's really important to have these responsive strategies that you mentioned.

Let's turn our attention now to the kind of concerns that we mentioned around greenwashing and greenwishing. So for our study, we interviewed, for example, Nathan Fabian. He's the chief responsible investment officer at UN PRI, and also the chairperson at the European Platform on Sustainable Finance. And he acknowledged that there has not always been sufficient clarity on the different uses, and approaches, and the contribution to environmental or social outcomes.

So John, I'd like to ask you the next question relating to this. You are WTW's global executive sponsor for ESG-related client solutions. You have vast experience advising on complex people risk and capital issues. So with scrutiny around greenwashing and greenwishing intensifying, how can investors make sure their sustainable investing strategies are delivering true impact and value for their clients? John.

JOHN BREMEN: Yeah. It's a great question, Martin. And I think we have to start with where Monique really put a fine point on it. It still has to start with purpose, an organization's purpose. I think so many organizations entered ESG almost with somebody else's purpose in mind, and never really looked at their motivation.

Are we doing it for compliance reasons? Are we doing it for pure social responsibility purposes? Are we doing it because it's part of our business strategy and we think that our future is nested in sweeping changes that have to be brought on by ESG factors? And there's the opportunity.

Why are we doing this? You have to always start with the why. And I think so many organizations ran into ESG very well intended, but never really focused on the why. But once you clear the why and you then start listening to what some of the pushback on ESG has been all about.

And greenwashing, as well as greenwishing, I think both have been significant sources of pushback. Greenwashing, where organizations are putting a good facade on, but not necessarily taking the true steps in the background to do what is necessary to make progress. And then greenwishing, which I am so intrigued by, because that is well-intended leaders just hoping that certain things turn out to be true, even though they're not, and getting themselves into problems.

The three strategies or tactics I've seen, Martin, for companies to avoid falling into those traps are, first and foremost, boards, investors, key stakeholders, ask the tough questions. Don't be afraid to ask the tough questions. Even though ESG is still so young, we now know so much more than we did even a couple of years ago.

And what we find is the investors, the boards, the stakeholders, who are not afraid to ask those tough questions-- if they don't understand something, if something doesn't make sense, if it doesn't compute, chances are, if it doesn't make sense to you, it's not making sense to someone else. And we actually make ESG stronger by not being afraid to ask those tough questions. I think some people have been reluctant. But I think the ones who really ask the tough questions, first and foremost, are really getting there.

Secondly, we need to have a set of specific defined and codified metrics around what we're trying to achieve, back to the purpose point. If we can't assign metrics and measurement to what we're trying to achieve, we will go around in circles forever, talking a good game, but not achieving it.

And then, third, we have to hold people accountable. But we have to be clear who we're holding people accountable, for what and for. I think so often it's so easy to put these broad objectives out there without really talking about the clear path to who's responsible for implementing them. So those are my magic three, starting with purpose. Again, asking the tough questions, defining cogent metrics, and then determining who should be held accountable, and holding them accountable.

MARTIN KOEHRING: Amazing. Thanks, John. That's really powerful, those three magic solutions that you mentioned. I mean, in terms of, as you said, asking those tough questions, the codified metrics, and the accountability. And you started with the key question, which is, why are we doing this? And often, we're just doing these things. We're doing ESG, but we are not going back that step that's so vital. Why are we doing this? So this is a really powerful question. And some of the answers you have already given that help us on that journey to improve ESG.

There is, of course, also new regulation to combat greenwashing and greenwishing. I mean, for example, the EU's Sustainable Finance Disclosure Regulation, which we look at in our study as well, they're aiming to improve transparency of sustainable investments, for example, by creating these kind of new categories of sustainable funds, so-called Article 9 funds. They look at sustainable goals as their objective, and Article 8 funds that promote ESG characteristics, but do not have them as the overarching objective.

And in the UK, for example, the FCA has also issued a consultative document for its sustainable disclosure requirements. They give three categories of [INAUDIBLE]. So there is progress in this space. Regulation is important. So Katie, I would like to ask this next question to you. I mean, as a member of Johnson Controls executive committee, you help drive the company's top tier sustainability performance in areas such as technology, development sustainability, and creative policies to solve tough environmental problems.

But you also have, interestingly, the public sector experience as well. I mean, you were the first woman to serve as chair of the White House Council on Environmental Quality, and as a deputy assistant to the president, to President Clinton's administration in the mid 1990s. So with your vast private and public sector experience, I'd like to ask you about the importance of regulation to address some of the concerns we've just discussed around ESG. To what extent is regulation needed to align profit seeking and social impact, by way of incentivizing companies to properly cost externalities? Katie.

KATIE MCGINTY: Yeah, wonderful. And I have to say, both to Monique and John, what terrifically insightful comments that you've shared. And I'd like to build on a couple of them.

First of all, Martin, to pick up your setup pieces, in terms of the pushback and the move forward, I think that exactly captures the moment that we are in. I think that leaders of any kind of institution would be mistaken to think that critique means collapse of momentum in this space.

In fact, some of the critique is a necessary signal of the maturation that this issue has arrived and has arrived in a way that leading institutions like the ones you just mentioned-- interesting, Martin, think about the institutions that you just mentioned. You did not say the Environmental Protection Agency. You did not say the Natural Resources Agency. You said financial security investment regulators. That's because we are at an incredible inflection point where sustainability ESG has gone from feel good to strategic must do.

We're in a different world. To your point specifically about regulations, one, climate sustainability does now in a very real way impact long-term asset value. That means you bet there needs to be some rules of the road, some clarity, and some financially-- data of financial value and integrity. So all good.

One piece of regulation, though, that I think we shouldn't mistake for a failure of sustainability activity is, can businesses alone and financial investment properly guarded and guided fully solve the climate or other ESG problems? The answer is no. But I've heard some critics of ESG say, well, because business can't do it all, then either their actions are not that useful, or maybe even bordering on the fraudulent. Never in the history of democracy anyway has systemic change come unilaterally. It's always a combination of people up, government down, technology in between, innovation that can stick and stay.

One last piece, so regulation has a huge piece to play. We've never seen the push and pull either that we see today from a regulatory point of view. SEC coming in to ESG. That's a big push, but now billions and trillions in a big pull in things like incentives for efficiency, renewables, heat pumps, digitalization of technology that dramatically cuts emissions. There's momentum in this space like we haven't seen before.

And I think that, coming back to Monique and John's point, as companies really own, this is about their purpose, a magnification of that purpose in brand enhancement, in bottom line bolstering, and in energizing their teams. This is now a different place than just a nice environmentally right thing to do.

MARTIN KOEHRING: Yes, great points, Katie, there. You mentioned something that is really powerful, which is that we have evolved from kind of something that is kind of feel good to something that is a strategic must do, as you said. And it's a more systemic change in a way, and building on that momentum.

And it's really, as you said, the starting point for our study is that this critique is absolutely essential. It's not like we can just go on just as if nothing had happened. We need to look at why is there this critique of ESG. And it doesn't mean the collapse. It just means we need to revisit ESG and make it better, and make sure that we rebuild that momentum that we have created. So that's really powerful.

I mean something we address in our study as well is not just regulation itself. And we mentioned how important it is. It's not the panacea. It's not going to solve everything. It is important, but it's not just regulation itself, but it's also the number of regulations. That can be an issue. A common complaint that we analyzed in the study is both investors and companies say this, that the sheer number of ESG frameworks and reporting standards, more than 600 as of 2020 alone, makes it difficult for corporations to kind of decide how to demonstrate their ESG credentials, and also, actually, also for investors to determine how to assess that.

So every week there seems to be a new announcement about a new sustainability regulation, or the release of new guidelines, new frameworks. So how can organizations ensure that they don't miss the wood for the trees? So Katie, as a follow-up question, what should companies do related to transparency and clear ESG disclosure? And how can they find the right balance?

KATIE MCGINTY: So terrific. So Martin, two different things-- one, there is this amazing cacophony of rating agencies and people who are going to rank you, and rack and stack you. And you could spend all day, every day filling out their forms. In that space, I do think there is some maturation happening, too.

And for those who have not been active in this arena, look for initiatives like CDP, formerly known as the Climate Disclosure Project, or TCFD, the Task Force on Climate-related Financial Disclosure. I would say those are among two that are emerging as kind of a first among equals in these ratings and these analyses that you can participate in.

Those are worthwhile things to do because they take you through almost like an enterprise risk management type of exercise and analysis, things that healthy organizations are used to engaging in. They are very good checkpoints for your performance against objective.

Second, a very different thing that is new and emerging-- we touched on it before-- which goes to this is now in the arena of financial regulations. We do have some cacophony there as well. So far the SEC's approach is not necessarily aligned exactly with where Europe is going. But I think that that's an evolving space. And I think that the entrance of players like WTW, players like professional accounting firms, et cetera, are going to begin to gel and harmonize a professional cadre of excellence in this space.

But get your feet wet on things like CDP. Go through a TCFD exercise. And then do things that are fairly straightforward. Measure your scope one and two, your operational emissions. Know what that is. Know what that baseline is. And begin to get your arms around this.

Lastly, I do want to say here, though, in terms of how does an organization navigate, those are some things that I think are well to do. Coming back to purpose and drive, I just want to share one tangible example. As this becomes C-suite relevant, in our experience, Johnson Controls, we do sustainable buildings. That's what we do. Yeah, we get called in. Hey, bad news, Bears. We've got big high electricity bills. Cut our energy bill, would you? That's what we have spent most of our life doing-- cutting emissions, cutting energy consumption.

Now, it's a C-suite activity. So the CEO of a hospital says, our energy bills are killing us. And we think we want to make one of these climate commitments. It turns out that the very same interventions-- we go in there. We've got temperature sensors. We've got humidity sensors. And it's driving the energy bill down. Is that feel good?

Let's get to the strategic heart. Those same sensors also detect viruses in the room. The hospital exists to make patients well faster. What they found is their strategic doubling down of their mission to be able to achieve healthy patients, just as part of a strategic plan around climate. This is where climate enables. When it's C-suite, strategically driven, rooted in the purpose of the organization, it is rocket powering that strategy and that purpose of the organization forward. Far from being a distraction, we're getting lost in the forest, and not seeing the trees.

MARTIN KOEHRING: Great points, Katie. I mean, they're strategically important elements that you mentioned. The C-suite is concerned about these issues. And it's related to corporate purpose, as you said. And you mentioned some of those important frameworks, that we can't ignore. And although there are so many out there, you mentioned some that are absolutely crucial, like CDP and TCFD, for example, and the need to know your baseline and scope three.

But what you said about strategy and the importance of having that C-suite buy-in, and looking at this from this strategically important perspective is absolutely vital.

KATIE MCGINTY: Now, Martin, just on that real quick, I mean, in terms of now with the SEC in ESG, for a company like us, we've been around 140 years. We're typically in the basement fine tuning your HVAC system. With the SEC in there, this issue goes from the basement to the boardroom right quick. And it definitely has much more strategic significance for the company.

MARTIN KOEHRING: Oh, definitely. Great points. I mean, Monica, I also would like to ask you in terms of how you see this balance in terms of companies, what they have to do in terms of transparency and clear ESG disclosure, and how to navigate that in terms of the sheer number of new guidelines happening. What's your view on that?

MONIQUE MATHYS-GRAFF: Yes. Really just building on everything that Katie has said, I agree with that completely. I think that this challenge of increased disclosure requirements, where we get a little bit lost in sometimes tick box exercises, all of the data, all of the policies, all of the information overload, the balance is found through prioritization of the organization, but through two lenses.

I think, firstly, the risk management emphasis has been present. And it's presented us with one lens through which we prioritize all of these ESG and sustainability related requirements. But when we start looking at it through two lenses, not only through risk management or risk mitigation perspective, but equally, strategically, how do we leverage the opportunity, as Katie so well gave the example on. How do we leverage the opportunities linked to our purpose, alongside what they're already asking us to do anyway?

We start being really clear as an organization that it's not 500 things we are solving for. But actually, if we look at the intersection between the ESG factors that solves for the risk management issues equally allows us to leverage opportunities, meet client needs-- guess what-- grow your revenue base and your client opportunity sets, be more effective in implementing your strategies. You get a much smaller list of 10 things.

And in most cases our experience has shown-- sometimes it's not 10. Granted, sometimes it's still 20 to 50 things-- but that reduced list, once you've honed that in as an organization, it doesn't matter what new disclosure requirement comes from which region or what part of your offering. You're probably 80% there. It helps you with that 80%, 20% to report into any disclosure to ensure you are improving your transparency by staying true to driving strategic outcomes while improving and caring for the people and planet.

The last thing I want to say-- they're not getting lost in the wood from the trees-- is this constant also discipline. When you look through a risk management and a leveraging opportunity lens, we start really understanding what is the impact of all of these fundamental systematic changes on our organization, on our clients, on our costing, but also what are we doing that's contributing towards greater challenges or greater opportunities?

So it's the positive and the negative, looking at it together. The more we just grow in that discipline-- and listen to the criticism, because they help us understand those two lenses-- I think the quicker we will increase our positive impact and reduce the negative impacts.

MARTIN KOEHRING: Great points, Monique. I mean, you mentioned something really powerful, which is that actually the list isn't that long. I mean, companies and investors can sometimes be overburned and overwhelmed with this long list that can turn into this kind of tick box that you mentioned. But the list is much smaller when we look at some of the things that you mentioned, like the risk management lens, but also the leveraging opportunities lens, which is all about meeting client needs to be more effective, and also looking at the impact more broadly.

So this is great. I mean, obviously, the ESG ratings are a frequent focus for critics. I mean, we looked at greenwashing and greenwishing. And ESG ratings really have come under the spotlight as part of that. Companies can have very different scores from different providers, leaving investors very much confused about what they are actually measuring, to your point about the tick boxes.

So is it about being healthy? Or is it about risks? So there's often this confusion. In our report we also mentioned a study of ESG ratings by PanAgora Asset Management. They found that the amount of ESG data available for a given company is positively correlated with its ESG rating. So it is plausible that some bigger companies, for example, have the resources to play this ESG scoring game.

So Monique, as a follow-up to the discussion we just had, how can investors and companies best make use of these ESG ratings? And to what extent should rating agencies themselves be regulated?

MONIQUE MATHYS-GRAFF: That's actually a tricky question. And I think I'm actually going to start the other way around, and just first say regulation comes in different shapes and forms. There's a big range from anti-competitiveness penalties to transparency standards and guidelines, to price caps, et cetera. And too much is not ideal, right? I think we get that.

However, in the context of this response, what I do just want to present, and I think where some of the criticism has landed is that the system is evolving at different paces. Equally, regulation is evolving at different paces. And different types of regulation is being applied.

To bring it back to the ratings question is that the ratings itself presents a challenge in what it is basing its conclusion on for that reason. The ratings currently, in some instances, is basing a decision on high quality information, highly regulated areas, and aggregating with it low quality, low confidence, no verification information. And you sort of get a point in time.

So I'm all for complicating to understand and simplify to decide. However, I think as the industry and the system continues to evolve, we are starting to see some of these challenges where there's a mismatch. And it does feel in this space around the ESG ratings that, just like the intent of a lot of this regulation is to protect the consumer to ensure better, higher quality informed choices to hold organizations and everybody accountable, that the product is actually doing what it's saying that it's intending to do, that it is not doing harm to people and planet, and that it is, in fact, benefiting societies and the environment.

The challenge when you have one component in that system that doesn't have any form of regulation or accountability is that it breaks the trust of the consumers using those products. And it influences the producers. And it creates the reverse effect of, therefore, the consumer's trust is broken. And so they don't use and buy products that actually are doing good and are not doing harm, because the information that was used to make the rating or the information is incomplete, or not completely monitored, regulated with appropriate oversight.

And so as this evolves, I think that what we were trying to show, the benefits where organizations and investors and consumers can continue to make the decisions is to look to things like the International Sustainability Standards Board, where all listed exchanges are starting to build consensus and standardize around what needs to be done, what needs to be disclosed, what information has high integrity, high quality that you can trust.

And as more information flows through the system, one would hope that that continues to improve the integrity and the trust so that we continue to have better product. We can see that the decision we made in buying a good and service or making an investment decision is indeed having increased positive impacts and reduced negative impacts. And so I think that there needs to be some degree of regulation, but it needs to be anchored into the overall systems' regulatory evolution with a clear purpose of being able to improve the integrity, the trust, and the decision makers of the end users of those products.

MARTIN KOEHRING: Yeah. That makes sense. And as you mentioned, Monique, it's all about going back to that core purpose of helping to make better decisions and benefiting investors, business, and consumers to have this kind of more complete and also high quality information. And you mentioned some of those developments, such as the ISSB, the International Sustainability Standards Board, and exchanges that are moving in that direction of creating that consensus and that standardization to go back to that core point of building trust and integrity linked to the overall system, as you said, Monique.

So let's turn our attention now to the importance of engagement as one of the tools really to help companies to get better at this, but also to do the right thing. And investors can really help with that. And stewardship, of course, is a powerful tool. But the carrot of investment needs to be backed up by the stick of divestment for engagement to really have a genuine impact. And that's something that we looked at in our study as well.

So in our report, we discussed the example of Aviva Investors, for example. They have a climate escalation and engagement pathway, which looked at the 30 biggest emitters of carbon dioxide in globally listed predominantly fossil fuel firms. They looked at whether they have a TCFD report, for example, science-based targets, a commitment to new capital expenditure, and so on, and so on. And so it's really like a framework to analyze their sustainability approach. And if they don't get the answers they seek, they ultimately part company with them.

But we also interviewed for our study Steven Waygood, the chief responsible investment officer at Aviva Investors. And he told us that-- he told us for the report that divestment is not really a badge of honor. It's kind of a failed engagement process.

So as we have discussed, I mean, obviously, ESG integration is a significant issue, especially when balancing these kind of short-term performance concerns with long-term value creation. So how does engagement, particularly that stewardship, fit into that? And I'd like to ask John, how does the concept of stewardship factor into the ESG discussion in your view?

JOHN BREMEN: Thanks, Martin. It's a great question. And I think I want to start my answer by drawing on a point that Katie made just so beautifully, that a lot of the pushback on ESG is not, I think, assigned to put down the topic and walk away because at the first sign of complexity we give up. Just to the opposite, I think it's a sign of maturation, and in many ways of mainstreaming ESG.

And when we look to over the last, say, five years, if I was in a room full of executives and five years ago I said, how many of you know what ESG means? A very small percentage, a very small percentage would. Today I think the vast majority of people at least know what it means. They may not understand it, but they know what the letters mean. I think a lot of the pushback has simply come now from so many more people watching this issue and asking good, valid questions, and trying to separate the myth from the reality.

And I think it's funny. I'll never forget the way Katie has talked about taking it from the basement to the boardroom, you gave a very real world example of how it has. And I think as new as a topic as ESG is in the history of the business world, stewardship is a topic that has been around for as long as there has been business. And what has become compelling about stewardship to me and to us is that it's a far less ideological lens.

Somehow ESG has been just staked out on every ideological extreme. It's not one side or the other it's just somehow it's become ideologically driven in many ways. I think many people mistaking the purpose of an organization, as Monique so beautifully talked about, and its raison d'etre, and its reason for doing ESG, whether it's, again, the compliance, whether it's the social responsibility, whether it is central to its business strategy, either as an opportunity, or as a threat. And so many organizations that are threatened by it try to ignore it as opposed to taking it on.

Stewardship as a concept is something that is not ideological and is based on the fundamentals of business, which is really all about investors compelling boards and management teams to be more effective long-term owners of the enterprise that's entrusted to them, and to be more responsive to the various constituents they serve. That's not a new topic. That actually goes back to Adam Smith.

And to me, many of the debates on ESG missed two important points that both Monique just talked about and Katie's talked about, which is not only looking at the purpose, the people, the planet, which we have to do, but also looking at the impact on performance, and risk, and protection. And so many great discussions of ESG stop immediately short of talking about what the impact on performance is. You can't have a conversation about ESG, and metrics, and outcomes, and inputs without really understanding the net long-term impact to the organization.

I think, Martin, to your point and to your question, we've seen time and time again organizations that do look at this in a focused, analytical, metric-driven way do outperform those that don't. It seems to have been proven out. We all hope that would be true. That's not greenwishing. That's actually true, that there is a correlation between the actions that companies are taking, and the achievement of their long-term strategies.

And also we've seen in recent years example after example after example of what happens when you're managing the risks brought on by ESG factors instead of ignoring them. I think you don't have to look too far. In 2023 even, as young as 2023 is now, of how many examples even this year there have been of the risks of ESG gone wrong manifesting themselves.

And so to me, I think that integrated holistic approach to stewardship, where we're taking the ESG factors, relating to purpose, to people, and to planet, we add the performance element and the risk protection element. And we, I think, have a very robust and long-term oriented discussion that would be tough for too many people in the business world to argue the validity of.

MARTIN KOEHRING: Amazing. Yeah, John, you made some really powerful points. And I love the fact that you're going back all the way to Adam Smith, which is something that we love to do at The Economist Group as well.

You mentioned that it's really-- it's all about being more effective owners of the enterprise in terms of how boards make decisions, but also linking with risk and performance, and the correlation you mentioned of the actions that we take and the outcomes in the long term. And it is important to manage risks. And it's good for performance, ultimately, and the integrated, holistic approach to stewardship that is absolutely vital. So great points there, John.

We are about to run out of time, so I'd like to, by way of summarizing the session, I'd like each panelist to think about the future of ESG during this decade. And this is the decade of action. As you know, we have the SDGs this decade that many are kind of off track. And 2030 is kind of the deadline. And there is opportunity for ESG to help momentum towards those kind of systemic challenges at the same time as driving profitability and managing those risks that we have mentioned. So what is the one insight you would like our audience to take away from this discussion about the future of ESG? And I'd like to start with Monique.

MONIQUE MATHYS-GRAFF: This is going to sound like a cliche, but let us not allow perfection to stand in the way of progress. And I had such a great discussion with the head of financial stability at the Bank of England the other day, who said, last year when we were looking and doing our carbon scenario planning at an economy level, the challenge is just faced in getting something like that published. And you can imagine the complexity at an economy-wide level in making those disclosure statements.

And I think that is a bit of the paralysis that we sometimes feel. And all of the criticism adds fuel to that paralysis and some of the challenges and pushback we've received. And so I put the challenge in the hands and before leaders to say that it is within the realm of your ability to still move forward to take all of that on board to recognize that the progress is more important. We have discussed all of the components that is moving to drive us to substantial improvement. But that progress is possible. And we shouldn't let perfection paralyze us, so looking forward to action in the years ahead. Thanks, Martin.

MARTIN KOEHRING: Despite the setback, as you said, Monique, it's important to keep the momentum. And the complexity is there. But as you said so eloquently, Monique, let's not make perfection stand in the way of progress.

Katie, I'd also like to ask you about the one insight you would like our audience to take away about the future of ESG.

KATIE MCGINTY: Yeah. I think it's breaking news that ESG, sustainability, climate are no longer periphery, if they ever were. They are performance, central performance relevant, and performance essential. Second, don't be distracted by the cacophony. Drive with your purpose to understand how ESG is and will transform your business, and then run after it positively.

And it will bolster your bottom line, burnish your brand, and fire up your people when you put them to this purpose that will drive and grow your organization and take it to whole new heights. It's here to stay, and it's here to lift your business if you go after it with affirmative purpose and determination.

MARTIN KOEHRING: Amazing. Thanks a lot, Katie, for those powerful words. And as you said, it's performance essential. And even though we had this pushback, we shouldn't be distracted. There's so many benefits to remaining on this journey.

And last, but not least, John as well, what is the one insight for you that you would like our audience to take away about the future of ESG?

JOHN BREMEN: Don't speak after Katie, because she's fantastic. That was so well said, Katie. From my perspective, Martin, for me, I think the one thing we've learned in asking the tough questions, which would be my lesson-- ask the tough questions. All ESG is not good. And all ESG is not bad. It is not unidimensional. Companies do ESG for many different reasons, from compliance to social responsibility to strategy. Understand why a company that you either invest in, or work at, or run is in ESG. And then focus on the stewardship aspects of performance and risk protection. If we can do that, I think we really will have made strides in 2023.

MARTIN KOEHRING: Amazing. Thanks a lot, John. I mean, asking the tough questions, as you've said. And hopefully, my questions have been tough as well. I mean, at least you have definitely answered them in a very eloquent way.

So you mentioned it's all about not all ESG is bad or good. It's shades of gray. But it's important to keep the momentum going. So thanks a lot to the panelists for your great insights.

I would also like just to close with the key summary from what I have taken from the conversation. As we said, and John at the beginning already said, asking the tough questions is important for the board, for investors. So don't be afraid to ask those tough questions.

But the codified metrics are also important and the regulations. And of course, it is important to have accountability and transparency, as we all said. And as many of you said-- Katie you said this very eloquently, which is that critique doesn't mean collapse of momentum. The pushback is good for evolution. And you mentioned some really good examples there as well in terms of taking ESG from the basement to the boardroom.

And Monique, as you said, organizational purpose is critical as the starting point, whether it is about compliance, social good, risk, and so on. And we talked about the regulations. And the sheer number of regulations can be overwhelming. But there are ways to tackle these. And as you said, Monique, during the conversation, it is about looking at some of those critical points, such as risk management lens, the lens of leveraging opportunities, and then it doesn't look that overwhelming.

And I think, Katie, you mentioned some of those critical frameworks, CDP, TCFD, and looking at that kind of purpose, and drive, and that strategic vision that is important. And that way it isn't that overwhelming, but it becomes a much more strategic opportunity.

And we talked about ratings as well. And it's really about going back to why we have ratings. It's about protecting consumers, better information, and choices. And finally, stewardship, and John mentioned how important it is to go back to Adam Smith, but also to look at risk and performance, and looking at the correlation of actions and outcomes in the long term as well, and having this integrated, holistic approach to stewardship.

So thank you, again, to our panelists, John, Monique, and Katie, for a great discussion. And I'd like to encourage all viewers to read the study by Economist Impact supported by WTW, "Pushing Back, Moving Forward." Thank you very much.


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