Company Health (Beyond Profit)

youdo talks to Emma Tottenham about all things company culture. Episode 9, Part 1

Luke Gaydon, CEO of youdo discusses ESG strategy with Emma Tottenham, founding partner of Perigon Partners:

Executive Summary

  • Perigon helps businesses put sustainability efforts @ the centre of their strategy. They work with organisations to enhance their commercial strategy, deliver positive impact (people and the planet) and address the business risks from ESG issues.

  • Within the next decade, ESG will sit at the core of financial business planning. SMEs shouldn’t be put off addressing ESG because they think the topic is too big/complex. A smart ESG strategy can sit within existing business planning processes without requiring additional headcount or budget - it’s about pragmatism and prioritisation.

  • Climate change (Environmental) has led the recent progress in linking ESG to long-term business value. Social is getting there but it’s more difficult to track the value of social initiatives.

  • Be aware that implementing ESG means addressing corporate objectives and employee evangelism at the same time and likely in very different ways.

  • When it comes to looking at ESG for your company, start small and get going!

Luke - I’m delighted to welcome Emma Tottenham, founder of ESG Consultancy, Perigon Partners, to this episode of our Discussion Series. Emma thank you for joining us and agreeing to provide some much-needed insight and clarity into the broad topic that is ESG. Could you tell us a little bit about your background and Perigon Partners?

Emma - Hi, thank you for having me. I founded a company called Perigon Partners just over a year ago. The purpose of that company is to unlock the power of business to enrich people, planet and prosperity. So what does that grand statement mean? Essentially, we're all about helping businesses to put sustainability efforts right into the core of their strategy. And that does multiple things of value, like, enhance the commercial strategy, deliver real world positive impact, address risks, and also help with their stakeholder engagement and communication. Prior to that, I was on the Exec team of one of the large UK banks and in that role I looked after sustainability and corporate communications.

Luke - What should the successful implementation of an ESG strategy deliver? I guess there's a sort of meta question - what is the point of ESG?!

Emma - Which is a good question. ESG is often used as a catch all for everything in the, let's say, non financial space. That has led to some of the reputational problems that it's been suffering from over the last couple of years. When we talk about ESG, we're very much thinking about how a company responds to and manages risks from environmental, social, and governance factors that might have an impact on its long term financial performance. The flip side of that is called Impact, which I suspect a lot of people have heard about, perhaps in different contexts. When we talk about Impact in this sort of context, we're talking about the effect that a company has on people, planet and the broader economy. So you've got the financial risk aspect of ESG and also the external facing aspects of what role your company plays in broader society. And those two things need to work together and be understood and built into a company's strategy in order for it to be sustainable over the long term. That’s the premise of the business that I set up and which I very strongly believe in.

When you look at that as the broader topic of sustainability, rather than just ESG specifically, the point of it really does come back to long term financial value creation. It's not a ‘nice to do’ PR exercise or Corporate Social Responsibility tool. It really goes to the fundamentals of how your company can create and retain value over the long term. As an example, if a company replenishes rather than depletes the resources that it relies on to make a profit today, then it has a much better chance of growing in the future, because it hasn't rundown whatever it is that it relies upon in order to make its product or deliver its service. So it's really about business models that can operate over the long term.

Luke - Could you give a couple of other examples of the sort of financial risks to a company if they are not looking at this space properly?

Emma - If we look at some of the social aspects, there is a risk that if a company is seen to be blind to ESG - whether that's in reality, or the perception because of poor communication - then it could potentially have much higher churn of its staff and/or vacancies that are harder to fill and stay vacant for longer. And therefore, all of its employment costs go up. The company might also have a workforce that is harder to engage and motivate and make productive. So the efficiency of that company takes a real nosedive purely because it isn't responding to the requirements of its stakeholders who care about these issues and expect the company that they work for or deal with to also take them seriously.

You've also got things sitting in there, like health and safety risk or other kinds of compliance risks which, if the company mismanages, can lead to fines and litigation that will hit its financial value. On the broader side of things, you have reputational risk, where mismanagement of a lot of these issues is much more publicly noticed, due to social media and the sort of trends that can take place there. From Black Lives Matter campaigns and the expectations on companies to respond in the right way, to issues where a company seems to be polluting a local river, and that gets picked up on and becomes a major thing. The issues of reputational damage or consumer boycotting that go with that, whilst they might be hard to pinpoint and measure individually, contribute in a meaningful way to profitability and the ability for a company to manage that.

Luke - I saw an article the other day that suggested that for a FTSE 100 company, the damage to a company from negative ESG reporting can amount to over £1bn pounds. One of the questions I wanted to ask is whether ESG is a ‘nice to have’, or a ‘must have’. You've made a very compelling case for it being a ‘must have’ but there is going to be a difference of enthusiasm or even ability to fully adopt ESG within the corporate sector. There may be a lot of companies who would like to, but are constrained by reason of resource or budget or things of that nature.

Emma - I definitely think that it is critical, and will only become more so over the next decade or two decades. What I also very firmly believe is that there's a huge importance in dealing with it proportionately, particularly on the risk and reporting side. On the potential upside, you really do want to understand that well, whatever size of company you have, because you might be missing out on the next great growth trend or adjacent opportunity to your current business model. I think the breadth of the topic of ESG, and the fact that ESG is often misunderstood to be something that it's not, puts a lot of people off tackling it, or makes people think that they need somebody who's responsible for ESG, or a team of people responsible for ESG. What can be very beneficial is helping to build awareness for those smaller companies - helping them understand that it doesn't involve hiring new people, it doesn't necessarily involve increasing budgets. It involves a strategic thought process, which the CEO and management team should be doing regularly anyway, to really understand what's threatening the company and what the opportunities are. And then using your existing accountabilities and model across the business to try and embed that.

Fast forward 20 years and that's going to be the model that's successful, not the team of 50 people sitting off to one side ‘doing’ ESG while the rest of the business continues as normal. A lot of it is about helping to build understanding and awareness. One of the things that I was very keen to do when setting up Perigon was to make sure that we spend a bit of time pro bono every year helping the charity sector deal with this. Those are brilliant impact companies but they need help and support to deal with the risk elements of ESG.

Luke - A lot of the companies that we've spoken to are enthusiastic about ESG but don't know where to start. How do you go about creating an ESG strategy? Is there a simple process that one can follow?

Emma - You absolutely can get external support and that can be very valuable for certain companies. There is also a way that you can do this yourself and a process that will move you along on your ESG journey. The way that we tend to tackle it is dependent on what stage a company is at. We work with a number of very well established companies that have a clear purpose and culture and commercial strategy. When that's the case, it’s about how we weave ESG and sustainability into those existing frameworks. The other end of the spectrum is companies that are at a much earlier stage. Their culture and commercial strategy are very much in development. That's a very exciting time to look at ESG because you are creating something that will be enduringly fit for purpose, and marries the commercial aspect with the ESG aspect, which we believe in very strongly.

I guess with any company, regardless of size, scale or stage of development, that’s trying to make progress with an ESG strategy, one good way to start is looking at the whole spectrum of different ESG risks and opportunities. And working out which of those are most important to the company, which of those are most affected by the company's operations. And which of those are most important to its different stakeholder groups. This is called a double materiality exercise, but can be broken down into very common sense component parts. And that builds a broad picture for the company to then think about how it wants to address the different risks and issues.

One of the things that we see quite a lot of is companies falling into the trap of trying to do everything on every topic as if everything has equal importance. In reality, there are certain things that are hygiene factors in this space, and then certain other things that you would expect a company to be overly focusing on because it is much more exposed to risk or is much more core to its commercial model. That materiality exercise helps to break those things down. Then it's about doing a bit of a gap analysis, looking at where are the gaps, where are the opportunities, looking at your existing strategy and building a framework to address that. It doesn't need to be done yesterday, or tomorrow. And going back to the point of you don't need a separate team or a big budget to do this stuff. You need to make sure that you've got the right people across the organisation who are willing to take the initiatives on and own them, champion them and progress them.