Dr. Christopher Whittle is a highly regarded GRI Certified Sustainability Professional with extensive experience in providing expert guidance to boards and senior executives in the realms of effective board practices, strategic risk management, risk governance, risk maturity, and ESG reporting. Recently, during his visit to Mauritius to participate in a prestigious ESG seminar organized by Baker Tilly, Investor’s Mag had the privilege of conducting an interview with him.
Featured in Investor’s Mag, 25th Edition, July – Sep 23
What is your definition of ESG?
Defining ESG is a challenging task due to its ongoing evolution and the various aspects it encompasses. At its core, ESG revolves around sustainability, which is now being defined, measured, and reported in a structured and formal manner. In the past, sustainability efforts were often fragmented, with different organizations implementing their own initiatives, such as corporate social responsibility or reducing their carbon footprint. However, there was a lack of uniform measurement and comparability across programs globally. Additionally, there was no formal requirement to report using standardized formats and internationally recognized metrics. The shift in approach has been towards establishing a standardized and comprehensive framework for measuring and reporting sustainability, reflecting the way we now understand the importance of ESG.
How have you seen the impact of ESG initiatives in the corporate world?
The impact of ESG initiatives in the corporate world has become increasingly evident. Initially, the focus was primarily on environmental aspects, particularly in relation to climate change. Today, it is widely recognized that climate change is a reality, and events such as the effects of extreme weather, flooding, and droughts due to global warming have further emphasized this fact.
However, the importance of ESG goes beyond environmental concerns. The financial crisis exposed unethical behavior of organizations that knowingly sold sub-investment grade collateralized debt obligations linked to mortgage bonds. This highlighted the difference between what was legally permissible and what was morally acceptable. As a result, there was a realization that there needed to be greater clarity on how organizations should behave and be held accountable not only to shareholders but all stakeholders.
Transparency through corporate disclosures has become a crucial aspect, enabling people to make informed decisions. Simultaneously, the growing awareness among consumers regarding their choices, such as the origin of food, plastic usage, and its impact on the oceans, has compelled businesses to reconsider their practices. It has become clear that adopting sustainable practices aligned with ESG principles is not only ethically responsible but also makes good business sense. To remain relevant and maintain market share, businesses need to rethink how they operate and reconsider their business models.
This changing landscape is driven by multiple factors. The financial crisis and the increased oversight by governments necessitated a reevaluation of organizational behavior. Additionally, vocal and informed consumers quickly spread messages about social movements like “Black Lives Matter” and “Me Too,” putting pressure on companies to address social issues. Failure to adapt to these evolving societal expectations risked alienating clients and losing business.
Moreover, there has been a consolidation of ESG frameworks internationally. Previously, various voluntary frameworks existed, such as the Global Reporting Initiative (GRI) and others specific to industries like EarthCheck in the hospitality sector. However, a major development is the upcoming publication of the International Financial Reporting Standards (IFRS) for Sustainability (IFRS-S). Starting from reporting periods in 2026, companies will be required to report their sustainability and ESG metrics alongside their financial results. This will apply to listed companies initially and eventually extend to companies of different sizes.
This regulatory imperative, combined with the changing business landscape, will have a significant impact. Organizations will need to prepare for the forthcoming requirements, understand the implications, and begin collecting relevant data. A mindset shift and changes in business practices will be necessary to comply with these imperatives effectively and to benefit from its implementation.
The potential consequences of higher operating costs related to ESG implementation are a valid concern. According to a recent study by Environmental Research and Mentoring (ERM), institutional investors spent an average of around $500,000 USD on ESG implementation, including data consultancy. These increased operational expenses are often passed on to investors, resulting in higher management fees and fees for the investors themselves.
When examining different studies on this matter, it is clear that if businesses do not change the nature of their operations and simply add additional reporting requirements, costs will indeed rise. This is because it necessitates extra personnel to handle reporting and data collection.
However, it is crucial to take a step back and determine the focus materiality of ESG. Both Europe and other regions emphasize the importance of identifying those aspects of a business that are truly material and would influence investor decisions, as well as have significant impacts on stakeholders.
For instance, during a recent meeting with a hotel group in Mauritius, the focus was on food waste and its measurement for reporting purposes. This was a challenging task as it required measuring food waste from preparation, plate waste, and buffet leftovers. However, it was discovered that by implementing live cooking and regularly rotating food in the buffet, significant reductions in waste were achieved. This not only benefited the environment but also resulted in cost savings through improved purchasing practices and reduced waste.
While there are areas where costs may arise, by carefully reevaluating processes and adopting circular economy thinking, substantial long-term savings can be realized. The reality of economics also comes into play. As resources become scarcer, the cost of obtaining and using them rises. Therefore, while there may be upfront costs and investments in changing business practices, seizing the opportunity to rethink operations, reuse resources, and embrace sustainable approaches can lead to substantial changes and attract different clients. It may also mean that some businesses become less viable in the future, while new opportunities arise in other areas.
Consider the example of electricity prices in South Africa, where there is a shortage leading to an 18% price increase resulting in individuals investing in solar systems for their homes. Although it requires a significant initial investment, the long-term benefits include substantial savings and the recognition that sustainability is crucial. Relying solely on burning fossil fuels is no longer a viable option for a sustainable future.
In conclusion, while there may be short-term costs associated with ESG implementation, taking a holistic view and embracing sustainable practices can lead to long-term savings, attract new customers, unlock new opportunities, and contribute to a more sustainable and resilient business model.
Ultimately, ESG should be seen as a means to create a better quality of life, foster opportunity…
Dr. Christopher Whittle
Earlier in March, the US Senate voted against considering ESG factors when making investment decisions for retirement plans. Critics argue that ESG investments prioritize a political agenda focused on fighting climate change rather than maximizing returns for investors. Can you comment?
There is a perception that ESG is associated with “woke capitalism” and is driven by ideals of social justice and happiness, rather than sound business sense. However, this perspective has been challenged and debunked in various discussions because the two objectives are not mutually exclusive.
The concept behind ESG is that an organization must be well-governed, which falls under the “G” in ESG. Good corporate governance includes ensuring financial sustainability, as it is one of the top responsibilities of a board or governing body. Financial considerations are always important and cannot be overshadowed by sustainability reporting, but the question is how to achieve both financial success and sustainability.
While one could focus solely on making money in the short term through questionable practices, it is not a viable long-term strategy. Building trust, maintaining a reliable product, and taking care of stakeholders are essential for sustained profitability. The argument against ESG, which prioritizes sustainability, doesn’t hold up when considering the long-term benefits of ethical and responsible practices.
It is important to consider the context of the United States, where political parties engage in arguments against each other to gain advantage. However, looking beyond the US, the rest of the world, including Europe, fully supports ESG because it simply makes sense. The skepticism and questioning of ESG mainly arises within the US political landscape, while globally, the understanding of the value and benefits of ESG is more widely accepted.
What is your perspective on the disparity in implementing ESG between African countries and Western countries?
It’s important to consider the unique circumstances and limitations of each country. Regulations and measurements should focus more on how to measure and report progress, rather than imposing strict targets that may not be feasible for certain regions.
For example, let’s consider the case of a country like Mauritius, which is an island. It may not have the same resources or infrastructure as larger Western countries. Therefore Mauritius needs to balance environmental goals with the need to provide employment, education, and food for the population. It’s crucial to be realistic and assess what can be achieved within the specific context of each country. For example, while international travel may be a significant contributor to air pollution and global warming, completely cutting off international travel may not be a viable solution for an island nation heavily reliant on tourism. Instead, the focus could be on protecting natural resources that make the country attractive to tourists, such as beaches, mangroves, and reducing waste going into landfills. By setting realistic targets and disclosing progress, countries such as Mauritius can be held accountable while working towards their specific goals.
ESG implementation should be based on principles rather than rigid rules. Each country should define its long-term vision and incorporate ESG into its strategy accordingly. It becomes a tool to measure progress and ensure alignment with the country’s overall vision for a healthy, vibrant future. While African countries may not reach the same level as their European counterparts due to different circumstances, they can still make significant progress by leveraging their unique strengths and focusing on their specific goals and opportunities for improvement.
Ultimately, ESG should be seen as a means to create a better quality of life, foster opportunity, and strike a balance that aligns with the country’s long-term vision. It’s about creating a place where people are proud to be a part of, not just for its natural beauty, but for the overall well-being and opportunities it offers to its citizens.
Which countries are at the forefront of implementing ESG practices?
The frontrunners in terms of ESG implementation are primarily Europe, the UK, Australia, New Zealand, and certain countries in the East, such as Singapore. These regions have demonstrated strong commitment to ESG practices, largely due to the clarity provided by their governments and regulatory authorities regarding expectations and reporting requirements.
Europe, in particular, has been at the forefront of ESG implementation. The corporate sustainability reporting standards in Europe, along with the taxonomy framework, provide a clear roadmap for companies regarding what needs to be reported, when, and how. However, the reporting requirements in Europe can be quite complex, potentially adding significant costs for companies.
On the other hand, countries falling under the International Financial Reporting Standards (IFRS), which includes many regions outside of Europe, may have a simpler reporting process with fewer disclosures compared to the comprehensive requirements under EU standards.
Government bodies, central banks, and stock exchanges in various jurisdictions have played an active role in guiding and promoting ESG practices. This has created awareness among companies and encouraged them to extend ESG considerations to their suppliers and business partners.
While climate change is a universal theme in ESG, different jurisdictions may have varying focuses. For instance, the UK places significant emphasis on diversity, particularly the representation of women on boards, and incorporates this aspect into their ESG reporting requirements. Regional and country-specific differences contribute to the overall diversity of focus within the ESG landscape.
I would like to emphasize the opportunity that Mauritius has to implement ESG practices. With a strong awareness of the need for sustainability as an island state, Mauritius can take a thoughtful and considered approach to address environmental, social, and governance challenges.
It is important for Mauritius to develop a practical and long-term government strategy that involves collaboration between the private sector and the government. By working together, they can effectively address the complexities of ESG and ensure the achievement of the intended long-term vision for the country.
Mauritius has the advantage of not being burdened by an existing regulatory framework, allowing for flexibility and adaptability in implementing ESG practices. By taking practical steps and making a plan for the future, Mauritius can position itself as a leader in sustainable development.
Remember, the journey towards ESG implementation requires collective effort and commitment. By embracing this compact between the private sector and government, Mauritius can create a brighter and more sustainable future for all.