The Growing Importance of ESG Criteria in Corporate Decision-Making

The 3^rd Esade Alumni Directors’ Club Annual Conference, which was held as a hybrid face-to-face and online event, highlighted the growing role of environmental, social and governance (ESG) criteria at a time when the COVID-19 crisis has brought renewed attention to climate change and social impact and served as a wake-up call for decision-makers to prioritise a more sustainable approach to investment.

With the help of subject-matter experts, the conference analysed this highly topical issue from multiple perspectives – investors, corporate CEOs and board members – with the aim of deepening our understanding of how ESG criteria are being adopted and how we should face the future

Gema Esteban Garrido, Global Head of ESG at IG4Capital and Senior Fellow at the Centre for Corporate Governance at Esade, explained the risks, opportunities and consequences of COVID-19 with regard to ESG and commented on the ESG boom: “Thirty percent of assets worldwide use ESG parameters for their investment process. The more ESG data companies publish, the better their performance and their valuation as an investment.” However, she also identified three problems that need to be solved: the amount of ESG data available and the consistency and the quality of the data, which typically do not facilitate comparisons.

All of the speakers were optimistic that, just as a global standard has been reached for finance, a similar standard will be reached for ESG indicators.

Strategy and measurement

During a panel discussion sponsored by Diligent, the panellists analysed the greater integration of ESG criteria in business management and discussed how it affects corporate boards.

Rosa M. Sanz (SEP ‘07 / Programme for Directors ‘20), Board Member at Iberpapel, Capital Energy and Zero Waste Bioenergy (Suma Capital Group), commented: “We are increasingly seeing that top executives view ESG criteria as a management lever that brings value and growth; that corporate reports are more transparent and didactic; and that companies are increasingly engaging in dialogue with their stakeholders on the subject of ESG. In addition, business decisions are increasingly aligned with the Sustainable Development Goals and apply to the entire value chain; boards are devoting more time to ESG parameters and risk mapping; and employee training on ESG has also increased.”

Ana Plaza (Programme for Directors ‘18), Board Member at Línea Directa, Corporación Financiera Alba and Renault Group Spain, underscored the importance of first understanding what ESG means for the company itself in order to define the strategy, collect the data and measure progress. “Data is a challenge for everyone; it needs to be reliable, comparable, audited and verified,” she commented. “To do this, we have to allocate resources within our companies. Technology is essential to extract metrics that will have a major impact on financial performance through risk mitigation, financing advantages, better access to capital markets and cost reduction.”

Responsible investment

The future of sustainable finance and responsible investment in the post-pandemic world was discussed by Amparo Ruiz Campo, Country Head Spain & LatAm at DPAM, and Marisa Aguilar, Managing Director and Head of Iberia at Allianz Global Investors, who noted that ESG is not a luxury or an extra, but a core issue. “Sustainability ratings are essential to investors,” commented Amparo Ruiz Campo. “Greenwashing is no longer an option, since investment agencies are aware of it. We know what we are looking for in each company. So it is not only essential to do things well, but also to communicate your efforts so that this value comes through.”

Marisa Aguilar views climate change as a lever for economic growth in Europe: “The decarbonisation of portfolios between now and 2050 is the goal that we are all working towards. In this sense, not all sustainable investments are the same, nor are they made in the same way. It is a complex discipline that is constantly evolving. In a long-term investment, the idea of transition and the board’s strategy and vision matter as much as the available data. If you don’t have brilliant ESG results today, but you do have a solid strategy for the next few years, that also matters.”

ESG in action

Rosa Mª García Piñeiro, Vice President of Global Sustainability at Alcoa and Chair of the Sustainability Commission at ENCE and Acerinox, agreed that there is an avalanche of ESG standards and numerous different ratings agencies and ratings, but noted that the trend is starting to shift towards consolidation. “Are they all equally important? It depends on your company’s strategy,” she commented. “But in any case, all companies will be given a rating with or without their collaboration, on the basis of information in the public domain. Companies that have a greater capacity to generate quantifiable data will have an advantage in terms of positioning themselves. So companies should put this information in the public domain rather than just including it in their reports.”

Finally, Ángeles Santamaría (Programme for Directors ‘19), CEO of Iberdrola Spain, discussed the case of her company, which has successfully committed to sustainability. In 2001, Iberdrola launched its Strategic Internationalisation Plan and unveiled its corporate vision of a world whose growing energy needs would require cleaner and more sustainable sources. Iberdrola Renovables went public in 2007, transforming the company from top to bottom. “All these challenges have enabled us to improve substantially, identifying our social dividend with value creation for each stakeholder and our commitment to sustainability, with biannual plans and incorporating the UN Sustainable Development Goals into our business strategy and governance system,” commented Ángeles Santamaría.