Last Updated on Thursday, 13 July, 2023 at 12:19 pm by Andre Camilleri
During the past weeks, I had the opportunity to sit on different panels to primarily discuss the social side of ESG. Obviously, I witnessed different narratives, from gender equality, non-discrimination, safety at the place of work, female participation and other valuable human rights principles. Needless to say, panellists, including politicians, missed the point that the S in ESG entails the same notions that are already embedded within our laws and treaties.
Malta is party to the several regional human rights treaties. Among others, we are signatories to the European Convention on Human Rights, the Council of Europe Convention on Preventing and Combating Violence against Women, the Framework Convention for the Protection of National Minorities and as a UN member state, we are also the overseers of several UN human rights bodies. Indeed, when I sat listening to the discussions, it dawned on me that we might be missing some form of granular insight on the S of ESG.
Clearly, politicians are not expected to know the technical side of ESG. However, they cannot falter at any of the letters. Au contraire, they must be the enablers of each letter in ESG. Promoting ESG for the private industry is a step in the right direction and the private sector has a big role to play. The democratisation of the financial system can only be attained if the requirements of all the letters are satisfied. However, the financial industry on its own cannot implement what we really require achieving in the coming years. Unquestionably, the public sector must be part of the equation. Sadly, we are still discussing to close the gaps relating to human rights and workers’ abuses. Philosophically, the EU is trying to enhance additional transparency through the private sector. However, we must ensure that the directives and the regulations at government level are implementable, while the public sector is on board to further enable the ESG factors.
Lately, the health sector and other prominent sectors were classified as high risk in Moody’s social heatmaps. Moody’s designated the health sector, as well as the gaming sector, from moderate to high risk. The former reflects the fragility of the sector that sprung as a result of the Covid-19 pandemic. It transpired that in times of crises, the health sector requires additional human capital to deal with the surge of patients, especially those admitted to intensive care. Furthermore, ageing populations require additional healthcare workers, who must be specialised in gerontology. Certainly, human capital requires years of specialisation and those lost from the system are harder to replace. This means that there is a higher risk to cater for the provision of additional specialised health workers relative to our longevity.
Similarly, the gaming sector is also under a bigger spotlight given that it carries a social risk responsibility. Also, it is a sector whereby institutions are pushing to regulate further. Hence, the risk is higher from a social perspective and international institutions are trying to curb addictions through stricter regulation. To be clear, gaming companies are here to stay but under stricter EU regulations. The same applies to the G within ESG. Clearly, without proper structures both within the public sector, as well as the corporate sector, the G is difficult to attain. A recent paper by BIS discovered a correlation between money-laundering and the destruction of natural capital. This creates additional responsibilities on businesses through proper corporate governance. Unquestionably, corporate governance is crucial for the existence of a functioning healthy business, especially for big companies in real estate. The internal governance structure requires board level reporting, as well as the convening of management fora to promote transparent negotiations.
Today ESG requires public disclosures beyond internal and external financial reporting. True, public disclosures on companies’ sustainability practices fosters transparency. However, it is becoming cumbersome in times of inflation. Theoretically, it is a beautiful concept. Whoever bridged the economic and the social concepts must be academically rewarded. Nonetheless, the transition is creating additional costs to the public. Companies can easily adjust and pass the costs on to consumers. The level of scrutiny is quite arduous and regulations are complex. And I reiterate that the acceleration to transit to a more sustainable economy is in all honesty quite ill-timed. Inflation is squeezing everyone’s pockets and the stricter the regulations, the higher the costs which are then borne by consumers through the service industry.
Technically, ESG is a form of eco-labelling at par with other labels. Let me use the analogy of food labelling. When we pick a product from a supermarket shelf, besides the price, we check its ingredients. We check whether it contains nuts, sugars, or else if the product is gluten free. It is compulsory under Union law to provide such labelling. Unquestionably, it aids us to determine what to consume for the benefit of our health. Also, it is easier to identify any food allergies. The same concept will apply when additional data and reporting is made available on the market. Companies will be screened for their sustainability practices. Instead of checking the food ingredients, consumers will be able to look at a company’s practices on the E, S and the G. Some might be allergic to poor environmental practices. Others might be sensitive to inadequate social procedures. Other consumers might be allergic to weak governance procedures. Plainly, if a company evades on one of the letters under ESG they might be driven out of the market. Consumers will be equipped with supreme powers to choose better and wisely. And so will banks when granting credit.
ESG managed to accentuate the importance of sustainability and the attainment of the 17 United Nations Sustainable Development Goals, even though the recent report on the same goals shows poor achievements. Last week, I proposed the idea of a common EU framework to avoid abuse of powers in case of a force majeure similar to the recent global pandemic. In my opinion, the EU must push for the implementation of the European Charter of Patient Rights so that no EU citizen is left behind. It surely fits within the S of ESG and the recent UNSDGs report.
Empathy and understanding each other is the way forward in a world compounded by geopolitical instability and mental health problems attributed mostly to the effects of the global pandemic. We must campaign for a genuine European social economy, including the coverage of costs associated with the green and social transition.
