S2 E2: Why Every Company Will Need Good ESG Reporting with Michael Diegelmann
Companies around the world are facing increased pressure from investors, customers, and other stakeholders to measure and report their Environmental, Social, and Governance (ESG) performance.
In this episode, Michael Diegelmann urges business leaders to think about the impact their corporate practices are having on communities around them and on the planet as a whole. He stresses the importance of acting now, as it is "five minutes to midnight" for sustainability.
Today’s consumers, particularly the younger generations, have higher expectations and companies need to be proactive. In the clothing industry, for example, it is important for brands to guarantee that none of their products involve child labor in order to maintain customer loyalty.
Michael explains that the process of helping corporate clients improve their ESG performance begins with analyzing the sector and benchmarking the company against its peers. This is achievable through the Global ESG Monitor (GEM) report, which examines 625 ESG reports from 350 large companies on four continents and evaluates them on 180 different criteria. The next step is to conduct a materiality analysis, which identifies areas that must be tackled first for the corporation to be sustainable in the future.
Adrian asks how this technical work will translate into a more public conversation. Michael responds that it will take time and require a change in habits and patterns, but companies who don't make changes will have difficulty finding new capital in the future. He gave the example of a CEO who nearly lost a big deal because of a lack of good ESG reporting.
It is a long process to become a sustainable company, and Michael warns against greenwashing and false claims. He predicts that there will be an increase in lawsuits in the coming decade as people and NGOs push back against companies that aren't truthful about their practices.
Companies must be transparent and measure their ESG performance in order to be considered good corporate citizens. Those that do not will face public criticism and financial consequences.
- Listen to Michael's previous appearance on PRGN Presents
- Download the latest Global ESG Monitor report.
- "What Your Brand’s Sustainability Resolutions Should Be For 2023"
- "Five Key Takeaways From Top Brands’ ESG Reports"
- "New EU Sustainability Reporting Rules Ask EU and U.S. Companies for More Data on Operations"
About the Guest
Michael Diegelmann is a board member and founder of cometis AG and the Global ESG Monitor. Since 1998, he has gained a wealth of experience across the entire spectrum of investor relations. He specializes in IPOs, capital increases, ESG consultations, hostile and friendly takeovers (cross-border), and bond issues, as well as corporate crises and all aspects of investor relations and financial media work. Michael has a longstanding network of contacts with media, analysts, fund managers and many opinion leaders in the financial community. He is co-author of numerous specialist publications, including the bestseller "100 Financial Ratios" with more than 300,000 copies sold. After studying International Business Administration in Wiesbaden, the USA, Canada and England, he worked for a Frankfurt brokerage house, as a project manager for an international consulting firm, and as a freelance journalist.
About the Host
Abbie Fink is vice president/general manager of HMA Public Relations in Phoenix, Arizona and a founding member of PRGN. Her marketing communications background includes skills in media relations, digital communications, social media strategies, special event management, crisis communications, community relations, issues management, and marketing promotions for both the private and public sectors, including such industries as healthcare, financial services, professional services, government affairs and tribal affairs, as well as not-for-profit organizations.
PRGN Presents is brought to you by Public Relations Global Network, the world’s local public relations agency. Our executive producer is Adrian McIntyre.
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From the Public Relations Global Network, this is PRGN Presents. I'm Adrian McIntyre.Abbie Fink:
And I'm Abbie Fink, vice president/general manager of HMA Public Relations in Phoenix, Arizona and a founding member of PRGN. With public relations leaders embedded into the fabric of the communities we serve, clients hire our agencies for the local knowledge, expertise, and connections in markets spanning six continents across the world.Adrian McIntyre:
Our guests on this biweekly podcast series are all members of the Public Relations Global Network. They discuss such topics as the importance of sustainability and Environmental, Social, and Governance programs, crisis communications, content marketing, reputation management, and outside of the box thinking for growing your business.Abbie Fink:
For more information about PRGN and our members, please visit prgn.com. And now, let's meet our guest for this episode.Michael Diegelmann:
I'm Michael Diegelmann, co-founder of the Global ESG Monitor, and also the founder of cometis, which is a consulting company for ESG advisory and investor relations based in Frankfurt in Europe.Abbie Fink:
Michael, it's so nice to have you back on the PRGN podcast and we're going to tackle that topic again on ESG. It's amazing how relevant that topic continues to be and how important it is for businesses around the world to be thinking about their sustainability issues, the impact that those things are having on their business and the communities around them. I'd love to hear a little bit more about where we're at on that topic. You've mentioned the Global Monitor. Tell us a little bit more about what that is and the work that you've been doing around ESG.Michael Diegelmann:
ESG stands for environmental, social, and governance. Basically it's all about a quantifying system of what is called sustainability. And if you ask me where we are at when it comes to sustainability, I'm telling you, unfortunately, it's five minutes before midnight. So it is very urgent for all corporates and private people to start realizing that we have to change our habits towards our environment and towards our communities.Abbie Fink:
What kinds of things are looked at when you're developing an ESG program for a business? What prompts a business to say, "We really need to start putting our arms around this and measuring our impacts and measuring what we are doing in this space, and then ultimately how that affects the business that we're doing and the customers that we're trying to attract"? I mean, there's very good business reason for why we need to be doing this in addition to being a good member of our society and a good corporate partner. Tell us why businesses really need to be doing this.Michael Diegelmann:
Let me explain that and give you an example from the clothing industry. We all are wearing T-shirts and shoes and jeans, most likely. And if you or I or anybody who's listening to the podcast now, would know that child labor was involved when producing the of clothes you're wearing, the T-shirt or the shoes, most likely you would not wear this shirt. So, when you look at it from a corporate perspective and you look at big brands like Nike, Adidas, you name it, any kind of brand, it doesn't matter if it's them or not, they want to guarantee their customers, there's no child labor involved in producing their products. Because if they can't, most likely they will be boycotted and they will not get new customers on that. And this is just one example out of many, many, many, many details that corporates are facing now, where the clients say, "No, we don't want that anymore." A big example is in the US many years ago, in the smoking field. People said, "Okay, smoking is a cause for cancer, so it needs to be displayed on the packs that you buy, so the customer can actually make a decision. He knows what he's doing, what she's doing." Right? And it's all about transparency. And so corporates on this planet, no matter if you are in the US, in Argentina, Germany, or in Hong Kong, you have to start measuring what you're doing in all kinds of aspects of environmental for E, social and governance issues, to assure your clients and your suppliers and your vendors that you are a good corporate citizen.Abbie Fink:
How do you take a client through that process? I mean, that's so much to be looking at and so much to be evaluating on any one of those E, S, or G. But to put together a comprehensive overview, what are some of the steps you take with your clients who are willing and wanting to invest in that effort?Michael Diegelmann:
I think there's no willing or wanting. There is a need to do it, and there will be no other way for the corporates to start acting. But maybe we'll get to that in a minute. To answer your question, well, first of all, we will start analyzing what's been requested for that sector the client is in. And there are many frameworks out there or standard setters who describe in great detail what a corporate in this specific sector should report on. So, that's one of the first thing we look at. Then we look at, what do they do already? So, a lot of companies already started, it's not like they're all bad out there. Many companies and company owners have understood there's time to act, but those want to get better. So, we look at what they do and compare it to their peers or to their sector benchmarks. And this is possible due to our project, the Global ESG Monitor, where we analyzed 350 of the largest company of this planet, from four continents, on 180 different criteria. And based on that knowledge, we really can show corporates where their gaps are in terms of reporting transparency. That's the first step to look, where are the gaps? Right? And then together with them, we go through a process what's called a materiality analysis. So, we find out together with the client, what is really important for the client and all its supply chain, for this specific company to be a sustainable company in the future. So, we call that an inside-out and outside-in perspective. We lay those results over each other and come up with a so-called materiality matrix. And in any matrix what's ever in the upper right-hand corner, that's what you tackle as a corporation, but that's a quite complex process and it needs to be done right to actually present results that are understandable for the stakeholders out there.Adrian McIntyre:
Michael, I've thought a lot about this topic since the last time we spoke. You said a number of really provocative things in the last episode, and I thought, "Man, if I was an investor, for sure, I would want to understand a detailed breakdown, a scorecard if you will, for companies that I was involved with." In the same way that advertisers, for example, are concerned about brand safety and they don't want their products to be associated with things that turn out to be toxic in one way or another, whether it's antisemitism or environmental disaster, or what have you. These are current and compelling issues that everyone needs to be tackling. I think about, though, the complexity of what you describe, and I wonder, how is this going to break through, out of the somewhat rarefied conversations of capital financial markets and so on, into the general public awareness? Because what you're talking about at some level is a way for everyone to do better by being more informed. Consumers make better buying decisions because we understand, "I don't want my money to go to those folks, I want it to go to these folks instead." Et cetera, et cetera. Here in the United States, I don't know what the situation is in Europe, we have, for example, on restaurants, a health department score that sits in the window. So, you are considering, "Do I want to get my tacos from this place or that place?" There's a little placard in the window, it says A, usually, and if there's a problem, it's a B or a C, and that usually means the inspector found mold, roaches, whatever. You don't want to eat there. I don't know if it's very effective or not. I don't own or run a restaurant. So, for all I know the system is gamed, but this is a very simple way for people to make decisions. This is a long lead up to my actual question. How do you see this evolving from the very technical and detailed work, which is essential to produce these kind of scores that you're talking about, that you help clients to actually meet, right? How do you see that translating into a more public conversation? Obviously, going to have to be simplified, green, yellow, red or something, but how's this going to happen?Michael Diegelmann:
It's going to be a slow way to get there, that's for sure, because what it actually means is that people and corporations will have to change their habits, their patterns, and that is not easy, and that won't be loud. So, it will be on a slow path down the road. But the reason why it is happening is number one, because corporations who don't do it will in the future have it much more difficult to find new capital. And it doesn't matter if it's equity or debt, it doesn't matter if you are on the stock market listed or not, because the investors and the capital market community is changing their habits, and why do they do that? When we talk about capital markets, community is often asset managers, and the key word here is managers, they're just managing the money of the asset owners, and the asset owners are deciding what's happening with their cash, right? And they don't want their money to be invested in corporations who can't guarantee there's no child labor involved. They don't want their money to be invested in corporations who ruin our planet, or abuse certain minorities, or who are racist against certain minorities. And this is where the pressure is coming from, and it's especially coming from the younger generation because the big trends we are living in is ... I shouldn't say "trends," it's just things that will not change in this part of time. Number one, we have global warming. You see how the woods are burning in California or in southern France, and you see that you could very soon start producing wine in the UK because it's getting so warm over there. This is changing and therefore, corporates need to act. So, this is the capital markets view, they think, "No, we're not going to invest in those companies who are dirty or who are abusing minorities." And on the other hand, you have the customers, like I explained in the example before, you probably would not wear a shirt if you knew there was a kid on a field somewhere in the Southern state in the US, or in China, or somewhere in Central Asia, picking the cotton. So, this needs to be guaranteed it's not happening. And the example you gave from the food sector is pretty good, because the food sector is actually very advanced. You know already where the beef was raised and what it's fed and all that stuff. So, that's pretty good. We are on the way to a change, and I'm doing this podcast to encourage more corporations to start acting. We do have a responsibility for the next generation, otherwise, they will not enjoy the planet like you and I do.Abbie Fink:
That's an incredibly powerful statement, and I see this in a lot of the work I do in the nonprofit sector as well. The nonprofit has to demonstrate impact, and the demand for that information is coming from the younger generation. They have the wherewithal to make financial contributions to worthy organizations, but they want to be sure that that money is going and having an impact on the community. And I see this much the same way as consumers, our expectations are higher. We are demanding different things from the businesses that we interact with. And as a business owner, as a corporate, a leader of a large corporation, large or small, it's on us to make sure that we're doing everything we can to, as you say, leave it better than what we found it as for the next generation. So, how do we get started? What needs to happen from the business perspective? Where do we begin this conversation and making this investment in this process, in order to get the hundreds of markers that you indicated, that you evaluate, we have to be able to start somewhere. So, what does it look like for an organization today that says, "I'm willing to take this on and how do I get started?"?Michael Diegelmann:
I think a lot of corporate owners wouldn't do it just for the fun of it. It's happening because there's pressure. I'll give you an example. The CEO of a newswire company here in Germany I talked to the other day, was close to signing a huge deal with a very, very big stock exchange. And at the very last moment that stock exchange said to him, "Look, we're not going to sign the contract with you." That's like a big seven figure contract. He said, "Why? What's happening?" They said, "Well, you're not providing the information and data we need in order to produce a good ESG report." So, this guy turned everything upside down to guarantee the numbers he's delivering to that client are accurate. As soon as he did, they signed the contract. And this is an example in the IT industry. Picture what's happening in the food industry, if something's happening that's dirty, or in the clothing industry, or in oil and gas. So, that stuff needs to change. Even so, they may be producing lot of greenhouse gases, but they can still change all of their supply waste, and that's where the pressure is coming from. So, for them to start, most likely it's going to be pressure, but also, non-governmental organizations like the United Nations or the United Nations Global Compact, are doing a lot of PR to wake people up. And I think there's also a big fraction of company owners who say, "Yes, we will start that process." But reality shows when there's pressure, it's much faster.Abbie Fink:
Well, and it's a chain reaction because as you work your way down that food chain, Corporate A contracts out with Corporate B who works with small businesses, C, D and E, and all the way through that chain needs to be looking at these ESG components. Because if it goes that deep in that evaluation, at least in my opinion, it needs to be all the way through the system and ultimately down to the lowest common denominator in that system needs to be compliant as well. And there will be financial ramifications, as you said, because we will not do business with businesses that don't meet those standards. And money talks, so there's a lot of value in that.Adrian McIntyre:
One of the things that occurs to me historically, when you were talking about funds and investing those funds responsibly and ethically, and so on, I think back to the example of anti-Apartheid South Africa and the mobilization of a conversation to get pension funds and mutual funds, ordinary people's money that was being held in funds that were invested in companies that were supporting Apartheid, really did lead to a change. And it took a long time, but there were all the players involved that you mentioned, the NGOs and human rights organizations, the media. I mean, it really was a public relations project to change the conversation about this. Is there one breakthrough example that you think will help people realize the gravity of this? Because some of the impact is a little bit more abstract to people who aren't in this conversation every day, to people who don't think about the future in quite the same way. Is there some vivid story that will illustrate this? Or have we not quite seen that yet?Michael Diegelmann:
There's a lot of stories going on behind the scenes, but it's more on a corporate level, so a lot of lawsuits going on all over the planet, but it's not that tipping point kind of story where you can say, "This happened and then this changed." Again, I think as you were talking about Apartheid, I think it was Nelson Mandela who said, "It's a long walk to freedom." And I'm telling you, it's a long walk to be a sustainable company. It's not going from now and tomorrow. I can only urge people or corporate owners not to behave like this. Ticking the box is greenwashing and coming out with stories where you say, "Oh, I do good here and I do good there." And if it's not true, and if you don't walk the talk, it's coming back to you. It's like a boomerang. Like you said, the internet is big, it won't forget. So, if you lie, if you don't say the truth, I think we will see in the next coming decade, a lot of lawsuits in the US, in Europe, in Australia, where NGOs, all average people stand up and say, "No, we don't want this anymore." Follow the business media and you'll read lots of stories about it.Adrian McIntyre:
Thanks for listening to this episode of PRGN Presents, brought to you by the Public Relations Global Network.Abbie Fink:
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