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Multistakeholder dialogue on ESG regulation and expectations: Many open questions on ESG and disclosure
According to SwissBanking, an estimated additional investment volume of more than 390 billion Swiss francs is required to manage Switzerland’s transition to a low-emission economy by 2050. At today’s symposium organized by SWIPRA Services and SwissHoldings, a broad representation of investors and companies exchanged views on this. They discussed how regulations should be approached, what can be improved in the interaction between stakeholders and how sustainability should be strategically anchored in the various business models.
The event, held today in Zurich at UBS Grünenhof, was dedicated to the question: “ESG regulation and expectations: Spillover effects from the financial industry to the real economy?” – where the acronym ESG stands for the dimensions of environmental protection (Environment), social responsibility (Social) and good corporate governance (Governance). There was consensus among corporate representatives and institutional investors that the ESG efforts of the financial sector and the real economy are fundamentally interconnected and can only be advanced effectively together with a long-term view. What is needed to achieve this, especially in the area of leadership and disclosure, should therefore be increasingly discussed and decided jointly by the stakeholder groups. After all, the demands from politicians and the wider public are high. The financial system is increasingly expected to play a central role in implementing the 2030 Sustainable Development Agenda and the Paris Climate Agreement.
Current regulatory efforts harbor the danger of short-term actionism and threaten to miss actual goals
Established rating agencies not infrequently assess ESG criteria of companies very differently, if not contradictorily. On the one hand, this has to do with the specific focus of such an agency, and on the other hand with the difficult data situation and often lack of comparability of published information. Regulation aims to remedy the situation by demanding more standardization and transparency. The primary aim is to counter so-called “greenwashing” and make investments more comprehensible in terms of long-term value creation. This process is in danger of “overheating” as attempts are made to achieve too much at once. The focus on greater transparency along the value chain is also increasing the pressure on smaller companies, which are generally not the focus of regulation, to disclose ESG information. However, ESG reporting should be seen as an actual market “infrastructure” that needs time to develop and become robust. David Frick, President SwissHoldings: “The event showed that the financial industry and the real economy need to work together to deal with the current wave of regulation and make the economy even more sustainable and a force for good.”
A company’s positioning is being negotiated on an increasingly broad basis
Financial information has lost its monopoly on attention. Market attention is increasingly focused on ESG factors of corporate governance. Companies are evaluated by a much broader stakeholder group and are challenged to know the stakeholders most relevant to their individual situation and business model and to take them along on their “sustainability journey.” ESG factors can make a big and lasting difference to the reputation of companies and investors in a short period of time. Nothing new, really. But the inclusion of the stakeholder group increases complexity and sets new standards for expectation management. Last but not least, this represents a tightrope walk between local regulation and global best practice requirements. In any case, ESG developments must be understood globally by companies and investors.
Central: A well-established dialog between investors and companies
A major challenge is the measurability of ESG developments per se. While it is relatively easy to quantify and compare a company’s emissions (“CO2 equivalents”), ESG factors relating to social issues or biodiversity are much more difficult. Precisely because of the sometimes difficult quantification of ESG, transparent disclosure on strategic anchoring and accountability at the highest corporate level is becoming increasingly important. If currently measuring ESG performance targets is still difficult, at least the processes and responsibility should be well understood. This makes dialogue between the stakeholders involved increasingly important. Investment and business decisions based on a purely quantitative view of data run the risk of misallocation. Barbara Heller, Managing Partner SWIPRA Services: “Only a strategic anchoring of ESG enables a consistent classification of the associated necessary investments in the future, the required leadership and corporate culture and, as a consequence, the composition of the board of directors.”
Barbara Heller, Managing Partner, SWIPRA, +41 79 423 28 30
Denise Laufer, Member of the Executive Board, SwissHoldings, +41 76 407 02 48