The recently published third annual ESG Monitor from SEC Newgate has revealed what Financial Times’s Gillian Tett called an “astonishing zeitgeist shift.”
The survey showed that people’s expectations of company actions have changed dramatically, and companies will now be negatively impacted by breaching ESG norms.
ESG Mena takes a look at the report’s results from a macro perspective and unpacks key trends emerging in the UAE.
The global context
Globally, we’re seeing the rise of the conscious consumer. More than ever, people care about the environmental and social impact of companies and are keen to find out whether they truly walk the talk. This was evident in the results of the recent ESG Monitor survey.
Having collected responses from 12,080 people across the UAE, Singapore, HK SAR, Australia, Spain, Colombia, Italy, the USA, Germany, Poland, France, and the UK, the report revealed that people are increasingly engaged with ESG issues despite not necessarily being familiar with the term.
In fact, in comparison to last year’s results, 53 per cent were aware of ESG issues (up from 46 per cent) and 67 per cent rated their interest at seven or more out of ten (up 11 per cent).
Awareness and interest are also turning into action, informing how people vote, the type of food they eat, the types of products they buy, and how they travel. Indeed, we are also seeing holidaymakers increasingly prioritise environmental considerations, informing both their method of transport and holiday destination.
In line with this, a whopping 77 per cent of respondents want corporates to take action on ESG issues, and there was significant support (71 per cent) for companies speaking out on issues important to their employees and customers – revealing that ESG is a business imperative now, more than ever.
The majority (69 per cent) of respondents also shared that they believe good ESG performance doesn’t have to come at the expense of profit, and, in fact, 45 per cent said they are willing to pay more for products or services from companies with stronger ESG performance. Here, food was the area where people were willing to pay the most.
In terms of respondents’ perception of companies doing a “bad job” on ESG, the areas of focus highlighted included things such as harmful impacts on the environment and too much plastic to more socially-focused aspects such as worker exploitation and bad conditions. Excessive profits, price gouging and promoting overconsumption were also perceived badly by respondents, as was a slow transition to sustainability.
On the other hand, taking action on climate change was found to be by far the biggest driver of “good” ESG performance in large companies. Respondents also wanted companies to prioritise areas such as action on transparency, supply chain ethics and ethical AI. Indeed, globally, research shows AI is currently a top concern for many consumers, who are worried about misinformation, personal data privacy and irresponsible usage.
Communication expectations
When it comes to communication, the research found that while there was a slight decline from last year (72 per cent), 68 per cent of respondents believe that companies should outline the results of their ESG efforts more clearly for consumers and investors. That said, just 35% said that they were looking for information on companies’ ESG activities and performance.
It was also found that the community isn’t solely putting the onus on companies, with 70 per cent agreeing that the Government should be playing a “bigger role” to ensure there are better regulations for environmental marketing claims and that these are enforced. Similarly, 69 per cent said there should be a consistent approach for companies to report their ESG performance. Of course, globally, this consistency is lacking, despite the rise of ESG Disclosure Standards.
Community trust in companies was also found to be low, with 60 per cent sharing that they often worry about companies providing misleading information about the impacts of their operations. And, of course, this concern is well-founded, with greenwashing a serious issue permeating all sectors. Further, research from Scientific Beta earlier this year found that a high ESG rating has “little to no relation” to carbon intensity.
In the global survey, clear differences also emerged between generations, with younger generations more engaged on the issue of ESG and also most likely to factor in ESG in decision-making, employment and investment.
A regional lens
Through a more regional lens, the report found that in the UAE, around 74 per cent had heard of ESG. This is a 2 per cent increase from last year and puts the UAE at the top, alongside Hong Kong SAR and Singapore. The figure stands in contrast to ESG’s relatively nascent status across Middle East businesses.
There was also a significant increase in ‘net-zero’ awareness this year, reaching 61 per cent, up from 56%.
Interestingly, when it came to their day-to-day decision-making, citizens in the UAE were found to place a higher importance on ESG issues than in other countries. In particular, the types of foods they eat (77% vs. 62% globally), the types of products they buy (76% vs. 62%), and how they choose to travel (74% vs. 55%) were influenced by this. This aligns with broader consumer research data, which has found UAE consumers are willing to pay more for the likes of sustainable broadband, travel, and food.
Likewise, on whether companies should take action on ESG, it was a resounding yes, with ninety-one per cent agreeing this is important.
At the same time, 59 per cent of respondents in the UAE have heard of the term ‘greenwashing’, and 58 per cent agree that it’s a problem.
Further, the report highlighted that there’s been a shift in terms of consumer expectations. While many traditionally saw corporates’ primary role as making a “positive financial contribution to the economy,” now, consumers don’t want this to come at the expense of environmental, social and ethical obligations.
And what does the community look for regarding good ESG performance? A holistic approach and the demonstration of action.
The Anti-ESG movement & ESG evolution
As part of SEC Newgate’s ‘Global ESG Monitor’ launch, it brought together a number of ESG experts for a roundtable. There, a discussion was had on the anti-ESG movement, which has gained momentum in recent years. Here, Andrew Adie, Head of Green & Good and Corporate Reputation, SEC Newgate UK, said that the “woke-capitalist movement” is “kicking the tires on ESG.”
However, he encouraged corporates to “see it for what it is,” calling it a “broadly right-wing, ideological free-market view” that doesn’t necessarily tie into the “big macro issues” that are going to change the world in the next 15-20 year’s time, which he said includes climate change and generational change.
Meanwhile, Gillian Tett, Chair of the editorial board and Editor-at-large US, Financial Times, said there are some “real problematic issues” around combining the three elements of ESG. She said she believes it can be “much better described” as Adam Smith’s original vision of capitalism, with competition to drive growth and innovation within a shared moral and legal framework and an awareness of a company’s footprint.
Tett said that companies are now much more aware of the social and political contexts in which they’re operating and said there’s an ongoing move from “tunnel vision” to “lateral vision.” She added that the move toward ESG is being informed by the fact that there are “huge amounts of money to be made by playing into this trend, not against it.”
Further, Tett noted that while in 2019, greenwashing was common among companies, now green-hushing is becoming more prominent.
However, the research shows that the community will no longer accept what Geraldine Ang, Senior Policy Analyst, Finance and Investment and Global Relations Division, Environment Directorate, OECD, called the “PR packaging of responsible action.” Ultimately, consumers want to see companies “genuinely try” and take authentic action.