Many business owners believe that they are too small to have an impact on global environmental issues. They think it is up to corporations and governments to find solutions. Catalyst, a new research program that aims to provide businesses with an accurate picture of real-time shifts in consumer sentiment towards important environmental, social and governance (ESG) issues, believes that all businesses have a role to play, irrespective of their size. Tim Clover, the Founder and CEO of Glow, explains how consumer attitudes to these issues will affect your business.
Consider these results from the latest survey of Australian attitudes towards major social and environmental challenges. After the need to address COVID-19, Australian consumers cite climate change as their next most pressing personal priority, with 71 per cent saying they’d rather buy from a business with a clear plan for reducing its environmental impact – a figure that rises to 82 per cent among 18 to 24-year-olds.
Consumers are also keen to do their bit to reduce plastic waste. Forty-one per cent say they’d pay more for a product with less plastic packaging and invest in companies with good environmental records. Sixty-seven per cent are more likely to invest in companies that address climate change, and 72 per cent in companies taking action on plastic waste.
While Australia is routinely criticised for its poor environmental performance and enduring carbon emissions, research shows that our consumers take a dim view of companies that shirk their environmental responsibilities. And they’re voting with their wallets – spending a growing proportion of their income on products that reduce the use of damaging plastics and fossil fuels in production.
In the COVID era, it has become clear that we cannot rely solely on overstretched governments to shoulder the burden of climate action and need to take greater individual responsibility for stemming the flow of global warming.
A catalyst for change
This month, in conjunction with several Australian businesses, including Sensis and Who Gives a Crap, Glow will launch Catalyst. This world-first research program aims to provide businesses with an accurate picture of real-time shifts in consumer sentiment towards important environmental, social and governance (ESG) issues.
The platform will provide Australian businesses with robust data on how consumers’ attitudes and priorities are changing in response to pressing issues – and what kinds of products and services may help them “buy better” for their families, their communities, and their future.
The arrival of Catalyst is timely. In July, our Federal Parliament rejected a bill proposed by independent MP Zali Steggall to legislate for Australia to reach zero net emissions by 2050.
Australian Ethical Investment chief executive John McMurdo was quoted as saying the bill’s failure was a missed opportunity to “unlock massive economic benefits”. He cited a Deloitte paper released late last year, which warned that if Australia ignored climate change, it would cost the economy $3.4 trillion and result in 880,000 fewer jobs being created by 2070.
Speaking at the Australian Council of Superannuation Investors conference in July, CareSuper CEO Julie Lander said superannuation funds face increasing pressure from members to sell their holdings in fossil fuel investments and push listed companies to lower their carbon emissions.
Aware Super’s Chief Investment Officer, Damian Graham, said super funds played a role in pressuring companies to reduce their emissions. “We think managing the (ESG) risk is a smart thing to do financially from an investment perspective,” he said.
Reports have also emerged that BHP, the world’s largest listed mining group, is reviewing options for its oil business, including a trade sale. This is a major shift for the Australian behemoth, which has defended retaining the business for many years despite scepticism from more climate-conscious investors.
Consciences up, bonuses down
Despite a perennial annual focus on executive bonuses, Australia has seen a rapid rise in the number of Australian companies linking their executive bonuses to ESG measures.
According to PwC, 80 per cent of the ASX top 100 companies now have ESG metrics in their bonus calculations. In 2020, just eight top 100 companies included climate measures in short-term executive bonus calculations.
PwC Partner of Professional Services, Emma Grogan, said boards contemplating specific targets face several quandaries. “Companies must first design their ESG strategies and to identify quantifiable measures that can be applied to any targets that are set.” This is not easy given the dearth of historical data.
Former Kevin Rudd advisor and Accenture MD Andrew Charlton has said the big four banks and Macquarie would be hampered by the poor quality of ESG data. He said it was unreasonable to expect banks to have insights into climate risks facing customers when the customers themselves are not fully aware of them.
“The poor quality of ESG data exists right across the economy, so it is very difficult for banks to assess ESG risks in their portfolios,” he said.
Globally, of course, these issues are moving much faster. The issuance of ESG bonds looks set to hit $1 trillion for the first time this year – more than double the 2020 figure.
The world’s largest fund manager, BlackRock, has said it is prepared to vote against the management of companies that are not doing enough to deal with the risks of climate change. Last year it announced it would put climate change at the centre of its investment strategy and dump its holdings in thermal-coal companies. Just this year, it has expanded its climate change focus to more than 1,000 carbon-intensive companies.
According to Bloomberg, global ESG assets are on track to exceed US$53 trillion by 2025, representing more than one-third of the US$140.5 trillion in projected total assets under management. A perfect storm created by COVID-19 and the green recovery in the US, EU and China will likely reveal how ESG can help assess a new set of financial risks and harness capital markets.
Mr McMurdo says that by not taking climate change seriously, the Australian Government is not just failing to manage risk adequately – but is missing out on a sizeable opportunity for the country.
“Our government seems to consider it a binary situation where we can only choose between a decarbonised future or a robust economy. This is an absolute myth – there is not a trade-off. There are plenty of policies that will allow us to support both.”
And consumers want change too. A 2020 study by ad agency network Havas found that 64 per cent of people prefer to buy from companies with a purpose other than just profit – up from just 10 per cent in 2019.
Glow’s Catalyst program aims to help businesses large and small make informed decisions on those environmental and social issues that consumers think require the most immediate attention. By digging into these issues, we’ll be able to understand what consumers want and why, stimulate conversations about these challenges, and help businesses make informed decisions and launch their own programs of action to create positive change.
For free access to Catalyst’s research, sign up at glowfeed.com/catalyst