RESPONSIBLE BUSINESS ATTRACTS INVESTORS

Material published on the website of the magazine „Wszystko Co Najważniejsze“.

What is responsible business in the eyes of investors and the public? How to build a company’s sustainability communication to best respond to their expectations and needs? – writes Sebastian Hejnowski.

The answer to these currently pressing questions for many companies can be provided by the latest installment of an international survey conducted for the fourth time by one of the world’s leading consulting agency networks SEC Newgate, the results of which were published in the “Global ESG Monitor 2024” report. For Polish companies, it is all the more important because it shows the changes in people’s awareness – or lack thereof – over the past three years, as Poland has been participating in the study since 2022.

The coming months will bring the long-awaited amendment to the Accounting Act, introducing the Corporate Sustainability Reporting Directive (CSRD) into Polish law. It won’t be long before the capital market will see the first reports prepared by Polish companies – to start with, the largest ones, for which non-financial reporting is not a first for them – already in compliance with the new requirements of the European Sustainability Reporting Standards (ESRS). This is a real regulatory tsunami, which is giving the managements of many companies – especially small ones that still have a lot to do in this area – a headache.

The term ESG has not yet had time to take hold on Polish soil – according to the “ESG Monitor 2024,” only 9% of surveyed Poles confirmed that they know what it means (this is only 1 p.p. more than last year, although still the least among all 14 countries and regions participating in the survey ex aequo with Spain). If the statistics are to be believed, it’s mostly well-educated men over 50 who closely follow media reports. This group may be a significant percentage of the investing public, but definitely not consumers or employees. And soon the aforementioned abbreviations will also appear more commonly in our media space. But does this mean that, without knowledge of the latest corpom, ordinary people are unaware – and more importantly, don’t recognize – how important topics in the environmental, social and governance areas are?

Poland’s priorities are not only health care and the fight against crime, but also energy transition

“Global ESG Monitor 2024” clearly shows that this is not the case. Among the important topics for Poland, respondents indicated topics closely related to ESG topics.

While naturally the focus of respondents is still on their immediate needs to solve problems in the country, they are also increasingly concerned with broader social and environmental issues. Concerns about access to health care, ensuring a secure supply of energy and fuels, and reducing crime and violence dominate, but more than six in ten (63 percent) also believe that the transition to renewable energy is very important to Poland’s future. What’s more, many respondents think the energy transition is moving too slowly (46 percent), while only 26 percent think it’s moving too fast.

Other key ESG issues cited were countering forced labor and child labor (52 percent) and, to a slightly lesser extent, protecting the environment and wildlife (45 percent).

In the Polish context, forced labor and child labor seemed, at least until recently, to be something abstract, but according to the spirit of CSRD, companies will soon be held accountable not only for their direct actions, but also for the actions of their subcontractors throughout the value chain. And it will be the company’s responsibility to make sure that its subcontractors do not violate human rights. This would be a good place to start, after all, because the public remembers any shortcomings for a long time, which permanently diminishes brand value.

Communication priorities are core functions, but also cooperation with the community

“Global ESG Monitor 2024” shows that respondents expect companies to focus on impact related to their core functions – in particular, providing quality products or services (77 percent of respondents gave a score of 7-10), treating employees fairly (76 percent) and being open and transparent (74 percent).

In contrast, significantly fewer people in Poland expect companies to speak publicly on political (33 percent) and social issues that are not directly related to the company or its stakeholders (47 percent). More respondents indicate that companies should speak out on social issues directly related to the company or its stakeholders (56 percent) and environmental topics (57 percent). Interestingly, in all these areas, Polish respondents are more reserved than global respondents.

Supporting and working with local communities (68 percent), on the other hand, is the area where respondents see the most room for improvement. Engaging in social projects whose direct beneficiaries are the immediate neighbors should be prioritized by companies – these are not only current or potential employees and their families, but also current or potential customers and clients.

Greenwashing known more widely than ESG itself

“Global ESG Monitor 2024” also indicates that awareness of greenwashing is growing, which is important news for Polish companies and a major challenge for their communications.

More and more people in Poland (49 percent) confirm that they are not familiar with the term greenwashing (although only 15 percent admit they know well what it means) – and there are more of them than those who recognize the term ESG (37 percent, while only 9 percent know well what it means). This is significantly more than in the previous survey (41 percent). At the same time, when presented with the definition, as many as 54 percent of respondents felt that greenwashing is a big problem in Poland, although here there was a decrease from last year (56 percent).

Therefore, it is important for companies to better communicate the ESG measures they are taking, and what they are doing to better fit in with the expectations and needs of their stakeholders. To be able to do this, they need to get to know their stakeholders better and be in constant dialogue with them.

Investors also look at ESG performance

One of the stakeholders in the case of listed companies are investors. As providers of the capital necessary for a company’s growth, they are an important recipient of a company’s communications about its financial performance, but – as the “Global ESG Monitor 2024” shows, which for the first time included questions aimed at those who declare themselves active investors – not just financial ones.

While expected return on investment (81 percent scoring between 7 and 10 points) remains the most important factor in deciding to invest in a particular company, ethical issues (69 percent) and sustainability and environmental impact (60 percent) are also important to many respondents.

What’s more, 52 percent of respondents who are actively investing confirmed that they seek information about the ESG performance of the company they intend to invest in – and 14 percent of them always do so. Whether that’s a lot – we don’t have a comparison, in this case a benchmark to last year, but we can expect the number to grow as companies’ ESG reports become more comparable following the introduction of consistent reporting standards, and undoubtedly non-financial performance (e.g., carbon footprint) will increasingly contribute to financial performance.

And how important ethical issues are becoming for listed companies is evidenced by the fact that 4 out of 10 investors in Poland said they would most likely withdraw from an investment in a company upon hearing that unethical practices were taking place within it. This is less than the global average (49 percent) and far less than in countries such as the United States (52 percent) or Singapore (57 percent), among others, but more than in Germany (34 percent) or France (37 percent). This shows how much of a risk unethical behavior poses to a company’s reputation and to its stock price, which is an important warning to companies where ESG issues are not given proper attention.

Growing gap between expectations and actual actions

The main conclusion of this year’s “Global ESG Monitor 2024” report, however, is that there is a growing gap between the public’s expectations of companies, both large ones, which have already – mostly as a nice-to-have – taken ESG measures, and those of small and medium-sized entities, for which ESG will soon become a must-have.

And while expectations are higher for large entities – as many as 73 percent of respondents think it’s important for them to conduct their business responsibly (scores ranging from 7 to 10), SMEs should also pay attention (70 percent). At the same time, the actions of large companies are rated much more harshly – a flood of 36 percent of respondents gave them a rating between 7 and 10 points for their actions. This means a gap between expectations and actual actions of as much as 37 percent for large companies, compared to 24 percent for small and medium-sized companies, which could count on a better rating for their actions (46 percent). An explanation for this may be that any shortcomings at large companies reverberate much more widely, including in the media, than at small and medium-sized companies. The scale of the impact of large entities compared to smaller ones is also different.

This shows that large companies cannot count on any concessionary tariff. With each passing year, the scope of companies that will have to report their ESG performance will expand, but it is the big ones that will go first and will be the first to come under the magnifying glass of public opinion, which, instead of swallowing declarations, will soon say “check”.