Wednesday 12 January 2022
One of the most triumphant stories that people in my business repeat ad nauseum has to do with the outperformance of the S&P Environmental, Social, Governance (ESG) Index over the classical S&P index, over the last year. It proves our point that ESG investing is not merely wise in mitigating risk, but even more convincingly, companies with strong ESG performance surpass their counterparts financially as well. Forget the idea that to invest responsibly, you will need to concede on your returns. On the contrary, ESG information can serve as a good proxy indicator for how prudent, forward thinking, and innovative company leadership is.
Ten years ago, ESG was not as broadly discussed as it is today. In March of 2010, I became the Head of Corporate Responsibility and ESG for a pan African forestry and value-added timber products company. Up until that point we operated in Uganda and Mozambique; had attracted a modest but respectable amount of financing from banks, European institutions, family offices and high net worth individuals; had just successfully navigated our first Forest Stewardship Counsel (FSC) certification and were being widely celebrated as a champion of Corporate Social Responsibility (CSR) in East Africa.
During my first year in the private sector, we expanded into Tanzania, were short listed for the East African CSR awards and built a team of smart and savvy CSR leaders in each of our country offices. In September of 2011, my company became the subject of a salacious campaign by an international NGO, accusing us of land grabbing in Uganda. Overnight, we entered a crisis that would stretch us beyond what we thought possible. We lost a large investment from an international lender, faced disinvestment by many of our shareholders and watched our stellar reputation tarnished.
What surprised me the most about the protracted period to come, during which we would have to fight for the survival of our company, was the David and Goliath scenario into which we had inadvertently found ourselves flung. We were a fledgling start-up forestry company, relatively young, but rapidly growing. The campaign against us was lodged by a global, well respected, well-funded nonprofit organization with a strong reputation and a deep skepticism of the private sector.
In the months to follow, I would learn just how vehemently private citizens believe in the claims of such organizations and the lengths to which people will go in advocating for their beloved charity. I received hate mail and death threats. A barrage of negative international press buried our small team. Concerned board members and shareholders rightfully demanded answers. I undertook a multi month, deep dive investigation into the claims, fearing they had merit, only to learn the full extent of the terribly ill informed, one-sided, inaccurate allegations lodged against us. Emerging from my internal investigation with triangulated data, local legal counsel advice, government mandates, hundreds of community member accounts, and GPS evidence of human movement, I was met with a hard reality. Perception is confoundingly powerful, even in the face of contrary information. Our ability to clear our name and restore our reputation would involve far more than evidence of our humane and legal conduct.
In the year that followed, our company undertook the task of full alignment with international Environmental, Social and Governance (ESG) requirements (adhering to the IFC’s Environmental & Social Performance Standards, 2012) and exposure to external audit. On the back of these efforts and in the interests of protecting and maintaining relationships with hundreds of happy communities along our operational borders, we entered a multi-year mediation and an expansion of our community development investment.
What did this alignment with international ESG standards look like? It involved the creation of impact monitoring and measurement systems, the building of additional labor accommodations, documenting and measuring the outcomes of our community development investments, more rigorous recycling systems, water and energy use tracking, the creation of greenhouse gas measurement and reduction targets, mapping and protection of culturally significant sites, improvement of community and labor grievance systems, making public our annual GRI-compliant Sustainability Report, and the enshrining of many long standing company practices into formal policy. Many of these interventions saved our company operating capital while also improving and professionalizing our systems.
Slowly, over time, on the back of this work, we began to repair our reputation with the investment community. And something remarkable started to happen. Conversations began with several European Development Financing Institutions (DFIs) and other large, public investors. It was no secret that our company had been through a painful, public, well documented battle with the International NGO. We were considered risky. But in addition to the publicity of the claims against us was the honest, hard-fought restoration of our name and our social license to operate.
By aligning ourselves with international ESG standards and exposing our company to external review, larger and more impact-oriented flows of capital were unlocked for us. And beyond that, something about the fact that we had been tested, dragged through a public campaign to survive and even expand, seemed to underscore the lasting nature of our model, the ways in which our host governments and neighboring communities protected and advocated on our behalf, our relentless tenacity and desire to survive. After lengthy ESG due diligence and harrowing environmental and social action plans, three European DFIs and several impact funds went on to invest in our company. We expanded into Rwanda, secured our place in the Kenyan timber market, and rode the wave of regional demand for timber products.
In the years since this experience, I’ve often marveled at the subsequent upsurge in ESG investing, the meteoric rise in assets under management reserved for impact and the increasing appetite for ESG expertise at both the general partner and portfolio company levels.
My five-year stint with designing and building an ESG program into the DNA of a forestry portfolio company allowed me to launch a consulting practice focused solely on ESG and Impact investing, working with African and Latin American forestry operations, European energy companies, Middle Eastern and African investment funds and American start-ups intentional about their impact. Starting in 2022, I’ll be using this experience to help deliver ESG training for IASeminars. The appetite for this work and this experience has only grown as business leaders awaken to the ways that ESG creates value.
Unlocking new streams of capital, attracting and retaining talent, reducing the cost of capital, improving a company’s social license to operate, contributing to strong environmental stewardship and fighting climate change, reducing operating costs, opening new markets and adding material information critical to decision making. These are but a few ways that ESG has improved the operating and investment environment.
After more than a decade of implementing strong ESG standards for forestry, agriculture, mining, and other physically intensive operations, I have begun shifting focus toward how this work and this thinking manifests in businesses with less tangible outputs. How do we think about and design strong ESG systems where there is no production, no use of land and minimal labor? Where does ESG get triggered and create value in the digital universe? How do we measure the environmental footprint and craft reduction targets for companies with cloud-based operations? What does the ‘S’ mean where there are few staff and no physically affected communities?
The answer has something to do with translation. In the same way that global ESG standards are drafted in places like Bonn, Washington DC and London and meant for adherence in Kampala, Lagos and Bogota, so too must standards intended for high impact operations in factor driven economies be interpreted for digital businesses in innovation economies. The ubiquitous application of international ESG standards, like the World Bank Environmental & Social Framework, lie in their applicability in various types of investment environments, across the globe. The true test of such standards will be how they are rethought, how they adapt, and how they respond to application in the digital operating environment around which much of the investment conversation takes place today.
Business has incredible potential to positively impact the world. Weaving strong ESG principles into the DNA of our companies and ensuring our investments reflect our values can and will change the trajectory of our businesses and our lives.
 Which was replaced in 2018 by the World Bank Environmental & Social Framework
Upcoming IASeminars courses relating to ESG Reporting
We will be scheduling Kate’s first course soon. It will be of no surprise, given her experience described above, that the course will focus on GRI reporting. If you want to be informed when the course is available for booking, sign up to our newsletter here.
Here are some of our other upcoming ESG Reporting courses:
ESG Reporting - Why you need to care (Copenhagen)
7th March 2022
Accounting for Climate Change (Copenhagen)
8th March 2022
ESG Reporting - Why you need to care (Virtual)
14th March 2022
20th June 2022
Environmental Social and Governance (ESG) - data, accounting and reporting (Virtual Classroom)
25th – 28th April 2022
If you are interested in attending any of our courses let us know. There’s a “Keep Me Updated” button on each course page – click that and fill out the form to let us know of your interest and we can keep you updated about the arrangements for the course and answer any questions you may have.