ESG in its adolescence

ESG, a jet diesel engine

“Back in the day,” views were still focused on the short term. Many companies knew that the pressure was mounting, but were unable to see the way ahead. Not knowing how to act, they reacted, and “invented”greenwashing in a hasty attempt to make people believe that they were concerned by changes in society. But this fooled nobody.

Then little by little, the first regulations came into force. They provided a common framework and guided corporate governance. Some leaders even looked ahead to the coming world: “Jean-Pascal Tricoire took over management of the company 20 years ago,” says Rafael Segrera, now Schneider Electric’s South America Zone President. “He was a young leader with international experience. This world view gave him a firm grasp of the issue of the century: climate change. As soon as he arrived he began taking the group’s acquisition strategy in this direction.”

“Companies’ CSR strategies always start at the top, because managers are in contact with investors,” says Arnaud Rolland. “The big challenge is making people aware lower down, at operational level.” Once the ship is launched in the right direction, it’s time to get everyone on board. The same term was used by everyone we spoke to. And the same way of navigating is found in more or less all the companies we surveyed.

They keep in line with new regulations: “There are more and more of them, and so much the better,” says Audrey Pineau, Director and Head of ESG at CGI Business Consulting. “We were delighted to see the CSRD arrive. It imposes standards that enable companies to compare themselves with each other rather than making statements liable to greenwashing. Until now, big companies could communicate however they wanted; it was biased, and no comparisons were possible.” Regulatory compliance “is now the biggest lever” for change, and “will lead to financial penalties, regulations and controls.”

And a start has been made on organising teams dedicated to achieving these goals. Sandrine Sommer, now Moët Hennessy’s Chief Sustainability Officer, says that while some “pioneers”, like Guerlain, had “included a department dedicated to these issues in [their] policy-making body”, most organisational charts are suddenly jumping to it. “Over the last two years, I’ve built a team that has grown a lot. Today, there are almost a hundred of us”, says Audrey Pineau. “Various programmes have been set up and have led to a new approach since Brune Poirson took over as Accor’s Sustainable Development Director,” says Sustainable Performance Vice-President Victor Genin. “Six months ago, no one was doing ESG performance. Now I have a team of three reading the meters every day.” It’s the same story at Leroy Merlin: The retailer’s “positive impact team” has doubled in size “in just a few months”. “We’re seeing a rapid change with every half-year, every year,” says Audrey Pineau. “There’s a danger in moving too slowly,” says Sandrine Sommer.

Two main movements are shaping this emerging framework. The initial aim is to bring together all the local initiatives at group level, so that the new policy can then be passed on more efficiently to all the staff. “This creates the common trajectory we’ve been waiting for,” says Caroline Riffaud, Environmental Manager at CGI Western and Southern Europe (WSE). The basic idea is to get everyone on board.”

It is like a relatively controlled acne breakout. “Various things are still in their infancy, because they haven’t yet been standardised by regulations,” says Audrey Pineau. And when these do exist, they are not always appropriate: “Take our transformers, for instance,” says Emmanuelle Broustet, Linky Deployment Head with electricity distributor Enedis. “If we comply with what the European Union tells us to do, they no longer have the same energy competence. So we are talking to them now so that we can do things the best way possible.” This natural turbulence and the new direction companies are taking are also generating turnover: “Not everyone agrees,” says Tjeerd Krumpelman, Global Head of Reporting, Regulations & Stakeholder Management at Dutch bank ABN AMRO. “People have left; former employees have told us, ‘I don’t want to work for this strategy.’ And they have been replaced by others!”

This new corporate culture is not straightforward; it has to be shared and taught. “You have to train your teams,” says Tjeerd Krumpelman. “You can’t expect a mortgage adviser to know everything about how to make a home more sustainable.” An ESG company usually bases its approach on a regulatory pillar at the outset, then moves on to HR and innovation, and finally stabilises through a supportive strategy.

Adolescence is a dialectic between uncertainty and growth. But it leads to maturity: “We’re no longer raising awareness or explaining; we’re talking about the ‘where’ and ‘how’,” says Sandrine Sommer. “We’re going to get there, more quickly and together.”

Empowering managers in large companies

Over the last 20 years, the financial crisis has revealed the disastrous consequences of big companies’ obsession with short-term profit. To satisfy the demands of shareholders and attract new investors, directors and managers have sometimes acted irresponsibly without considering the long-term repercussions of their actions.

To make company managements more responsible, regulatory bodies like the International Accounting Standards Board, (IASB) seem to have relied on a disciplinary model, with the aim of holding businesses to greater account. This led firstly to the introduction of ‘improved’ financial reporting in the wake of the Enron scandal (with the creation of IFRS standards in the early 2000s), followed by the mandatory production of non-financial reports.

Sabrina Roszak,
Associate Dean of the Digitalisation Academy
SKEMA Business School

The fundamentals of ESG

“When I started working on sustainability 15 years ago, people would talk about ‘sustainable development’. Nowadays, we also talk about CSR, ESG and so on. In short, we can see that things haven’t quite stabilised yet,” says Arnaud Rolland, Lagardère Travel Retail’s CSR Vice President. And judging by the heads of the ten-odd companies we met, they’re definitely on the move. “I’m in charge of sustainability,” says Sandrine Sommer, Moët-Hennessy’sChief Sustainability Officer. “It’s a term that can be challenged. What I like about ‘ESG’ is that it gives a clear idea of the scale of the transition, which is not just environmental. People tend to restrict the subject too much to the environment.”

To get a clearer picture, let’s dispense with the dictionary. On Big Média, Bpifrance’s platform for entrepreneurs, CSR is “the practical expression of sustainable development principles. […] Corporate social responsibility is not limited to environmental actions. It also encompasses areas like attractiveness, employer branding, employee loyalty, private life and the search for meaning in work.” And, very importantly, governance. So how it is different from ESG (Environment, Social and Governance)? “There’s a cultural and business aspect,” says Bpifrance. “Unlike CSR, which affects all players in the economy, ESG is used more in certain sectors like investment.” “When I see ESG, I see sustainable development in finance,” says Victor Genin, Accor’s Sustainable Performance Vice-President.

So it’s all the same, except for human resources. “Switching to the term ESG has made it easier for our members to acculturate and understand,” says Amélie Auquière, HR, Sponsorship & Inclusion Development Manager at CGI France. When we asked our employees what CSR meant, three-quarters of the answers were wrong. It’s not as clear-cut. ESG already makes a lot more sense. Today, it’s easier to show the connections between the aspects we’re working on.”

The power of storytelling has not escaped Leroy Merlin either. Between CSR and ESG, the Mulliez Group company has decided on… “positive impact”. Often perceived as a constraint, the three-letter action here is associated with a vision of the world – an objective people want to share. “It may seem rather marketing-oriented,” concedes Agathe Ruckebush, Head of CSR Strategy Management, “but at the same time, ‘CSR’ doesn’t appeal to employees. It’s a technical subject, and for us the immediate issues it evokes are carbon, waste and safety in the workplace: restrictive subjects that don’t seem a lot of fun.”

CGI has also made a decision. “This year, we’ve decided to go for ESG rather than CSR. We felt that CSR could be simplistic, as it puts a lot of emphasis on E for the environment,” says Audrey Pineau, ESG Manager for the group’s Consultancy unit. But talking about ESG also means – and perhaps above all – stressing the G: “We’re also talking about a social and societal transition,” says Sandrine Sommer. Governance issues are crucial.”

So, underneath the semantic tectonics, a new mindset is emerging in companies. In the famous “time before”, we were more focused on society; today we look ahead to what we can do for society.

When we asked our employees what CSR meant, three-quarters of the answers were wrong. It’s not as clear-cut. ESG already makes a lot more sense.

Amélie Auquière, CGI France

Regulations governing non‑financial reporting

Non-financial reporting, which has long been a voluntary initiative with piecemeal methods, is of increasing interest to regulators and standardisation agencies worldwide. In recent years, the European Commission has become a key player in the regulatory landscape in this respect, with the roll-out of various regulations designed to foster responsibility in companies. Since 2014, a European directive (2014/95/EU) has required listed and certain large companies (with over 500 employees) to publish non-financial information (targeting organisations’ responsibility in terms of social, environmental and governance criteria). This Non-Financial Reporting Directive (NFRD), was transposed into French law in August 2017, with the annual Non-Financial Performance Declaration (DPEF), incorporated into the French Commercial Code. At the same time, starting in 2023, companies covered by the NFRD must publish their EU Taxonomy reporting every year, either in the non-financial declaration or in a separate report until 2024, and then in the management report from 2025 onwards.

While there is an obligation to disclose this information, there is as yet no compulsory framework for these initiatives, and in recent years numerous emerging initiatives have created a positive “ESG alphabet soup”.

However, it seems that it is only a matter of time. Americans and Europeans are now engaged in a battle to establish standards for non-financial reporting. On the European side, the Corporate Sustainability Reporting Directive (CSRD), a new version of the NFRD, is due to come into force in January 2024 and looks set be based on standards (developed by EFRAG). On the other side, private, mainly American players have commissioned the IFRS Foundation to draw up their non-financial standards.

But can these tougher regulations really make businesses more accountable? Does accountability make for more responsibility?

Sabrina Roszak,
Associate Dean of the Digitalisation Academy
SKEMA Business School