ESG’s next hurdle: When the demand is greater than the expertise.

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Sustainability is acquiring a momentum that appears unstoppable. After a record-setting first quarter in 2021 for ESG financing, the second quarter has continued the pace. According to Morningstar, while net inflows have dipped a little to $139.2bn globally, global sustainable fund assets have increased by 12% to $2.25 trillion. 

If 2020 was the year ESG flooded the financial market, 2021 may be the year it will break its banks. With genuine expertise hard to find within sustainability and ESG, the challenge is going to be to channel the water in the right direction.

The demand for sustainability is overwhelming

The attention of investors is mirrored by that of many consumers. According to a report on authenticity by Fleishman Hillard, 64% of consumers believe that the most credible companies must speak beyond the benefits they offer their customers. They also need to talk about their behaviour and impact on the environment and society.

If investors and customers weren’t enough, the demand is also there from employees. This is perhaps due to a talent market increasingly defined by Millennials and Gen Z, but either way it shows up in the figures. 

In an Acre report, Ramon Arratia, the Global Director of Public Affairs at Ball Beverage Packaging, proposes that many sustainability professionals are becoming more selective in the companies they work for. It is perhaps as a result of this that the natural resources sector are, as of 2020, typically paying their CSR professionals 25% more than they did in 2018. That’s a vast increase from the 6% pay rise seen between 2016 and 2018. 

But while sustainability professionals are becoming more selective, the demand for talent in the UK is set to expand dramatically. According to the Local Government Association,185,000 people were working full-time in 2018 in England’s low-carbon and renewable energy economy. By 2030, that number is expected to increase to 694,000 and by 2050 to 1.18 million. 

While these clearly will not all be consultant-level professionals, with the low-carbon economy growing by 11 per cent per year until 2030 (a figure 9-10% higher than the economy as a whole), the need for sustainability experts will only increase too. A need that is arguably far more pressing. 

Timely insight and action is urgent

The challenge facing the low-carbon economy – and all sectors pivoting to more sustainable business strategies – is that time is of the essence.

The Climate Change Committee (CCC) set out their recommendations for how the UK can reduce emissions by 2035 to 78% below 1990 levels – in line with The Sixth Carbon Budget. In order to achieve this, the CCC outlines how, with very few exceptions, all investments and major purchases need to be zero carbon by the early 2030s at the latest. 

To achieve these goals, a level of ambition is required. The CCC draws attention to businesses taking the lead like Velux, who plan to remove all their historical emissions through forest conservation. Velux are among those businesses who recognise that many sustainability measures impact their business’s future profits and growth.

There is a pressing need to address the value chain

Velux are hardly alone in this stance. Landsec, the first UK REIT to align with limiting global warming to 1.5°C, plans to become a net zero carbon business by 2030. Crucially, as detailed in their 2020 Sustainability Report, this target includes their Scope 3 emissions. These include shipping, purchased goods and services, investments and waste disposal, along with all that lies in the value chain beyond a company’s direct emissions and energy purchases.

Reporting Scope 3 emissions is a significant challenge for businesses, since they lie beyond their direct control. A degree of sector-specific creativity and insight is required here, both to accurately measure Scope 3 emissions and address them. It’s exactly the kind of area in which an external specialist can be invaluable.

The CCC is adamant that corporations should increase their focus on Scope 3, “even if there is no measured impact on the corporation’s own accounted emissions.”

There is a danger that sustainability efforts can be undermined 

Addressing Scope 3 issues, along with other sustainability issues in the value chain, is a significant step to ensuring CSR efforts do not come across as greenwashing.

In the flood of financing available to sustainable businesses, the investment market is navigating the debris of unreliable and non-comparable data. In a CFA Society of the UK survey, 75% of respondents (who make investment decisions or recommendations) say such data has hindered the integration of non-financial information into their company analysis. 

Many of the businesses that publish such data are well-intentioned. The problem is that true sustainability expertise is thin on the ground when compared to the demand. 

This issue is compounded by the number of consultants who have added ESG to their list of specialisms, when their actual expertise lies elsewhere. While every consultant will attempt to do their due diligence, to be competitive in this emerging market you need to go further than what is required. And to stay competitive in the years to come, deeper action is needed now.

Although measuring scope 3 emissions, for instance, is a challenge for many businesses, the CDP 2020 Global Supply Chain Report makes it clear that measuring is only the first step. While many of their members are turning their attention to their value chain, only 37% of suppliers are taking action and engaging with their own supply chain. 

To find a way forward, businesses need ambition, but they also need the right expertise. When the demand is so high and the supply so limited, traditional consultancy models won’t be enough.

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Freelance marketplaces are on the rise for a reason: they give you fast access to consultants who are at the forefront of their field. Many of them have worked for consultancy giants, but here you do not pay consultancy-giant fees. 

Through our transparent process, we’ll match you with the experts best suited to advise or consult on your project, and we’ll leave the final choice of consultant to you. 

To stay competitive with where the market is going, to protect both your stakeholders and bottomline, pay attention to the special reports written by our experts, request their advice or find a consultant matched to your business.

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