At the "Morning at the Core" event, a discussion on corporate responsibility: ESG metrics can be managed and measured
The theme of ProCom’s “Aamu ytimessä” event was corporate responsibility and the investment world’s sustainability term, ESG. Riku Ruokolahti from T-Media, Sari Kuvaja from Third Rock, and Nina Elomaa from S Group discussed how a company’s ESG image can be managed and what challenges and opportunities are associated with communicating it.
The acronym ESG—which stands for environmental, social, and governance—is now a standard part of today’s corporate sustainability vocabulary. In his speech at the Aamu ytimessä event, T-Media’s Development Director Riku Ruokolahti explained how researchers had identified a total of 33 acronyms related to sustainability, with ESG being one of the earliest.
ESG originated from an initiative aimed at integrating the capital markets with sustainability, stakeholder interests, and global needs.
“In 2004, Kofi Annan sent a letter to the CEOs of more than 50 of the world’s leading financial institutions, inviting them to join a joint initiative aimed at integrating sustainability considerations into the capital markets. The initiative resulted in a 2005 working paper titled Who Cares Wins,” Ruokolahti explains.
As a result of the project, the capital markets embraced ESG and began to require companies to meet the criteria outlined in the project: sustainability information and its measurability. The key motivator for adopting ESG thinking was the ability to scientifically demonstrate that sustainability measures contribute to increased shareholder value.
The ESG Perception model reveals what people think about a company's sustainability
Ruokolahti explains that T-Media has been measuring various aspects of ESG Reputation&Trust for the past ten years: the database thus allows us to observe how ESG perceptions have evolved over time. The research model aims to identify, isolate, and formulate those generic perceptions of an organization that are linked to stakeholder behavior toward the organization:
Reputation&Trust a competitiveness model that demonstrates how stakeholders can boost a company’s competitiveness through their own actions. The model covers the same factors that are also measured in ESG.”
Ruokolahti explains that it is worth measuring and monitoring a company’s reputation for corporate responsibility: how are you perceived, and how are your competitors perceived? Are you better or worse in comparison?
“What is seen as greenwashing today might have been a heroic act in the 1990s. Moral and ethical standards are constantly changing, as is the level of responsibility people expect others to demonstrate. And legislation follows suit, because we’re demanding that things happen now, even if they aren’t yet defined by law.”
“As consumers, job seekers, investors, and voters in a democracy, we act based on how we interpret the actions of various actors. An actor can lose its license to operate in society if people believe it is acting unethically,” Ruokolahti continues.
In T-Media’s ESG Perception model, “perception” refers to how an organization is viewed. Based on their views, people favor companies they believe operate responsibly.
“We can verify directly from the data that this is indeed the case. Companies perceived as more responsible are favored. People want to work for them and buy more from them. And, as proven by ESG metrics, these companies also secure financing at lower costs. Consequently, organizations perceived as more responsible are more competitive than their peers in this regard.”
In communication, one can only speak of achievements through actual actions
Ruokolahti notes that simply tracking perceptions is not enough: responsibility has two dimensions, both of which must be measured. The first and most important is actual performance, that is, factual metrics.
“How are we performing in the areas of sustainability? What is our carbon footprint? How much water do we use? When communicating about sustainability, we can only talk about our performance in terms of actual actions; otherwise, the organization is guilty of greenwashing.”
“When we track our actual performance in sustainability and how we are perceived as a result, only then are we at a level of leadership where we effectively manage both sustainability and communication.”
Corporate sustainability communications require data and metrics to verify claims
Sari Kuvaja, Head of Sustainability Services at Third Rock, discussed the factors that contribute to the credibility of sustainability communications. Kuvaja has been following the development of corporate responsibility and sustainability communications within the industry since the 1990s and notes that in the early days of corporate responsibility, sustainability communications were typically based on claims:
“To put it bluntly, the companies’ message was: ‘This is what we’re doing, and it’s a good thing.’ There was hardly any dialogue, especially with critical stakeholders.”
Strategic corporate responsibility has become a topic of discussion over the past five years, and responsibility management has been integrated into business management. Typical examples of responsibility communication include the commitments made by companies, which could also be called promises. As an example, Kuvaja mentions a commitment to carbon neutrality by a certain date:
“Commitments are a good thing because stakeholders can hold companies accountable for them, but they alone are not enough for corporate responsibility communications. Data and metrics are also needed to verify that these commitments are being met.”
Kuvaja notes that reputation and credibility are built over the long term. The credibility that is built through transparency can be leveraged during reputation crises.
“You can’t rely on reputation as a lifeline if it hasn’t been built up over the long term. Transparency also involves recognizing and acknowledging that things are a work in progress—in other words, that when it comes to responsibility, we’re never quite finished. It’s not worth waiting to communicate until all goals have been achieved. The goal will slip away.”
Sari Kuvaja's recommendations for sustainability communications
1. Put your organization to work for sustainable development
2. Treat your stakeholders the way you would like to be treated
3. Communicate about responsibility, even if the work is still in progress—because it will always be a work in progress
For the S Group, corporate responsibility is an integral part of its business strategy
In her remarks, Nina Elomaa, Head of Corporate Responsibility at S Group, said that stakeholders must also be informed about matters that are still in progress or uncertain. Communicating about future aspirations can feel challenging when there is no absolute certainty that the goals will be achieved.
“I know it feels uncertain and that you might hesitate to say this. However, it’s necessary to talk about our goals and the work in progress, because we’re constantly moving forward, and along the way we need to be able to assess our goals. Not just among external stakeholders, but also within the company,” Elomaa explains.
According to Elomaa, in addition to communicating goals, corporate responsibility communications must focus on what is essential to the company. The message must be engaging, but there’s no point in getting bogged down in trivial details.
“If a company is tackling major issues and its key challenges relate to emissions, for example, talking about plastic straws might seem a bit odd.”
Companies as pioneers in solutions
Nina Elomaa explains that the S Group continuously reviews its business strategies from the perspective of corporate responsibility. The company must stay closely attuned to developments, as expectations regarding sustainability have grown and global challenges cannot be tackled solely through regulation and traditional governance.
“We in the business community are the ones who bring solutions to the table. I have heard from EU policymakers that it sometimes even feels unnecessary to enact legislation when companies have already moved ahead and are implementing the objectives that the legislation is intended to regulate.”
Elomaa notes that corporate responsibility is becoming an increasingly prominent priority for companies. Currently, the focus of corporate responsibility is particularly on regulation, transparency, and communication. Sustainable development is promoted through various regulations, and companies have a wide range of operational frameworks in addition to ESG.
“We need to identify the right metrics in this world of metrics, figures, and numbers so that we can move forward at both the strategic and operational levels. We must keep in mind that the figures need to be communicable and understandable,” Elomaa says.
In addition to performance metrics, the S Group uses Reputation&Trust to measure its ESG reputation.
