Without G, there’s no E or S: What ESG analysts and investors neglect
Dear readers of GermanBoardNews,
at the World Climate Conference in Glasgow – hopefully – important decisions are being made for the future of our planet. It is already clear that the summit will bring climate protection even more into focus, including for boards of directors, supervisory boards and shareholders
ESG ratings will thus become even more important after Glasgow. But it strikes me: While analysts and investors are intensively concerned with key figures such as CO2-Footprint or the warming contribution of a company (“E”), they often treat governance criteria (“G”) stepmotherly
The quota of women on the board of directors, the proportion of independent supervisory board members – not much else usually comes up. Is that enough to assess corporate governance? Of course not
Bad reputation due to distorted G-scores?
This highlights a problem that I keep pointing out: the “check-the-box” thinking of investors and analysts. They are mainly guided by key figures, and these are particularly rare in the “G” area – and often less meaningful than expected: for example, diversity is about more than just the proportion of women, which analysts like to focus on
In addition, one notices time and again that many evaluators are unfamiliar with the two-tier system and the “supervisory board” construct. This increases the risk of distorted G-ratings, which may significantly lower the overall score (with corresponding effects on reputation and financing costs)
Or the grade is too good and “ESG laggards” mutate into model companies on paper. This would be doubly worrying, because poor governance also reduces the chances of things getting better. After all, good corporate governance is the basis for environmental and social sustainability. In other words: Without G, there is no E and S.
Talking to people instead of juggling numbers
We therefore need to discuss how we can achieve better ratings. I am convinced that new, meaningful indicators are needed to reduce the risk of distortion. How about the proportion of supervisory board members who completed further training in the previous year? Or that is committed to a personnel governance code?
It is also important to stop focusing on key figures and look at the big picture. The culture of discussion on the supervisory board (which has become the guardian of the company’s values), the team spirit on the management board, the ethos of the people involved – none of this can be condensed into figures alone. It requires the willingness to deal with people
Experience has shown that this is not the strength of analysts and investors, which brings us to a heretical thought: Do we need new entities for adequate ESG assessments? Aren’t soft skills, people skills and HR experience more important than the ability to juggle numbers? I look forward to your assessments
Yours sincerely, Peter H. Dehnen