Three themes shaping the ESG landscape in 2021
It's been more than a year since Covid-19 first broke out. Understandably, the pandemic has forced many businesses to focus on survival, while others have had limited capacity to pursue their ESG agendas.
Recent surveys also indicate that non-Covid-19 ESG issues fell down investor agendas in 2020 – but almost all investors and business leaders expect ESG strategy to return quickly to the boardroom as the global economy recovers.
We don’t yet know whether 2021 will mean more lockdowns or (as seems more likely) a gradual return to some form of normality, but whatever happens, we anticipate these three trends will shape the ESG landscape over the next year.
1) Impact investing
The authenticity of ESG strategies and their impact will be tested this year, which will see the $715bn impact investment market grow. One in five investors are more interested in sustainable investing because of the pandemic, according to recent research from BlackRock, and intend to double their allocation to sustainable and impact investing over the next five years. In 2021, companies will not only need to demonstrate how they have considered and supported all stakeholders through the pandemic, but investment managers will be actively seeking out companies that can demonstrate a clear positive social and environmental impact.
For BAT, our company’s purpose is rooted in our ESG strategy, all focused on one goal: tobacco harm reduction. While we are clear that the best option is to quit smoking altogether, many adult consumers do not wish to quit and we believe that those consumers should have access to and information about vapour and other potentially reduced-risk products. Beyond this, we want to deliver excellence in environmental management and deliver a positive social impact across our value chain.
For companies and investors alike, fair and accurate measurement of impact outcomes is key. Until the EU’s Sustainable Finance Disclosure Regulation is implemented to help stamp out greenwashing and put pressure on fund managers, the market has yet to coalesce around a single approach. This is why BAT aligns its ESG reporting to international standards such as IIRC, GRI and TCFD, as well as transparently publishing its scores in the leading investor indices such as DJSI, Sustainalytics and Vigeo Eiris.
2) Post pandemic multi-speed global recovery
With COP26 and COP15 both set to be rescheduled in 2021, the E of ESG will be a prominent feature on Boards’ agendas. But this does not mean human rights will be taking a back seat. There will be a keen focus on human rights and the devastating impact of COVID on progress in this area. In the UK, COVID has highlighted the gulf in between the ‘haves’ and the ‘have nots’. This will be replicated globally with the aftermath of the pandemic exacerbating global disparities.
Recovery in the developing world will be long, slow and difficult. There will be a multi-speed recovery which will raise human rights issues to the same level of urgency as the climate crisis. We have learnt from the approach to climate change that solutions to global challenges demand critical mass. Now more than ever, companies will be expected to have a more significant role in tackling a number of ESG issues.
I am acutely aware of the serious impact Covid-19 has had on our tobacco farming communities. However, we have set good foundations and already work with other manufacturers and suppliers to address human rights issues through efforts including the industry-wide Sustainable Tobacco Programme and the Eliminating Child Labour in Tobacco Growing Foundation. But we are also happy to lead and have set ourselves ambitious targets for zero child and forced labour in our tobacco supply chain by 2025. With COVID bringing human rights into even sharper focus, it is imperative we continue to work in partnership with others to support communities that may be particularly vulnerable to both the virus and its long-term economic implications.
Activism will have a huge role in pushing companies to do more. Activism has never been so present or so sophisticated. A year of on and off restrictions have forced activists to seek alternatives, and more and more people are using the one freedom they have - their voice - to demand change. It has moved beyond commenting in online fora and towards targeted action designed to force companies to change fast.
BlackRock is now backing groups such as ShareAction and Climate Action 100+ who are regularly making headlines for their ability to pressure corporates to adopt new resolutions. This momentum influences people who otherwise would not invest in shares. And it is working – with the media recently reporting that food retailers may be compelled to disclose their profits from unhealthy food.
It is important that companies like ours listen to stakeholders and address issues raised in a meaningful way. A crucial part of our approach to human rights is engagement with rightsholders in our supply chain. By listening to their views, we can work to address the human rights issues that impact them most. Our recent human rights impact assessments in India, Mozambique and Indonesia included extensive engagement with over 900 rights-holders in tobacco-growing communities, led by independent human rights experts.
With the top-down approach of investors and the bottom-up approach of stakeholder activists, ESG has reached a tipping point in 2021. It is now a key driver of our business, front and centre of company strategy. In an ever-changing world, businesses must fully understand what their ESG footprint is and be prepared to create value across all stakeholder groups. We must listen and engage with stakeholders, respond to activism with meaningful solutions and ensure we are having a positive and credible impact as a business.
It is important to us that we are a company that cares and listens but also one that makes huge strides towards change. We have set out ambitious ESG targets and we look to the future with optimism, ready to capitalise on the momentum that 2021 will bring.Jennie Galbraith - Group Head of ESG