Intensifying companies’ ESG performance integration, by Lise Moret

Lise Moret, Member of the ESG Lab & Society Strategic Committee, shares her vision of ESG and the role of the ESG Lab & Society.

ESG performance: obtaining concrete evidence that the company is orienting its strategy and business model to integrate ESG risks.

The acronym ESG literally stands for Environment, Social and Governance and refers to the three main factors for assessing whether a company or institution is sustainable and profitable in the long term.

ESG criteria applied to a company include all dimensions that describe the company’s relationship with all its stakeholders. This notion of stakeholder is essential to understand the meaning of ESG.  It’s not only the shareholder, but also our natural capital, employees, suppliers, customers, and finally society at large. Environnemental issues measure the direct or indirect impact of the company’s activity on the environment and natural resources.

The criteria concerned are, for example, carbon emissions, water consumption, pollution, and waste. Social issues include human capital matters such as the number of training hours and gender equality. It also includes supply chain management, customer satisfaction, and respect for human rights.

Finally, regarding governance, the corresponding issues relate to the way a company itself operates, its board of directors, remuneration structure and business ethics. Investors’ consideration of the ESG characteristics and performance of companies has gradually intensified over the past 15 years, in particular through major governance crises such as the subprime crisis in 2008/2009.

This intensification can also be explained by the international and regulatory mobilisation around major systemic sustainability risks such as climate change or biodiversity degradation. For almost two decades, responsible investors have largely focused on the notion of ESG risks, or more precisely on the ability of companies to demonstrate that they are managing these risks.

The most monitored indicators are those such as the existence of targets for CO2 emissions reduction, waste management, human resources management or the presence of independent audit bodies monitoring decisions and decision makers within the company. What is more recent is that ESG today goes further than just an analysis of operational issues and a list of criteria to be respected

Reporting on the ESG performance of a company or organization – particularly from the point of view of civil society and/or the investor – must now be accompanied by an analysis of the visible and rigorously measured externalities and societal impacts inherent in the activity of that institution. The perception of risk management also goes further. The question is now how obtaining solid evidence that the company is adapting its strategy and its business model to integrate ESG risks.

A common space for discussion between all economic stakeholders is needed more than ever

Expectations regarding ESG information from investors, civil society, the regulator, but also from companies themselves have evolved. These issues are now clearly considered strategic by many decision-making centers. But the different economic actors are not always aligned in their understanding and definition of these issues.

Although professional associations have become more organised and consultations between practitioners and regulators have incresed over the last few years on ESG issues, the silos are still there. A common space for discussion is now more necessary than ever so that all economic stakeholders – companies, investors, NGOs, regulators, etc. – can debate openly and regularly together on topics such as extra-financial transparency, climate objectives, human capital, and biodiversity. The ESG Lab & Society can and will fill this space. Lise Moret joined Banque Hottinguer in May 2021 as Head of Sustainable Finance and Impact Investing. She is also President of the FIR Research Commission and a member of the AMF Climate and Sustainable Finance Commission. Lise has been at the heart of the AXA Group’s sustainable finance initiative, which she joined in 2007. Lise started her career as an economist at CPR Bank in 1997, and at Dexia AM then Exane BNP Paribas between 1999 and 2007. Lise has a degree in mathematical economics (EHESS).