Clearwater's head of Impact Jo Daley explains how the ESG pendulum is about to swing back to the centre.
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00:00Hello, I'm Simon Keegan. I'm the editor of the Northwest Business Insider and today I'm joined
00:14by Jo Daly, the head of impact at Clearwater. Hi, Jo. Hi. So, Jo, you recently attended one of our
00:21roundtables and the subject of which was ESG. Really interesting topic and I know a lot of
00:28our readers and viewers. It's important to all businesses really, isn't it? It's something that
00:35people are interested in but I think it's particularly topical at the moment because
00:40we were on this one direction of travel, I think it's fair to say, towards net zero and everything
00:46else but, I mean, has Mr Trump thrown a bit of a spanner in the works, do you think, with this?
00:52It's a really good question. I think that ESG has always been a challenge for small businesses
01:00on top of all of the other aspects of running a business and keeping a business successful and
01:07growing. They've been told they now need to consider ESG and what that actually means to
01:12each business varies enormously dependent on the sector that they operate in and the different
01:18challenges that they're facing, the different customer groups that they have, etc, etc. And now
01:24good old Mr Trump has come along and shared his thoughts on ESG and I think it's causing quite
01:31rightly a lot of businesses to challenge whether this is now still something that is relevant for
01:36them, something that they need to be considering and factoring in. And yeah, it's the right time to
01:44have that conversation in reality. So on that, you know, Trump's, he's not a fan of the wind farm,
01:50for example, and he is a fan of, I guess, like drilling and fracking and all of this sort of thing.
01:57And because he's such a personality and, you know, love him or hate him, you click on to find out what
02:05he said next, don't you? You know, there are going to be people thinking, do you know what? Yeah, he's right.
02:12Why am I bothering with it? Why do we want wind farms? You know, and so perhaps that influence
02:19from the States might start to filter down in this country.
02:23Yeah, no, and I think that's exactly what we're seeing. The noise and the rhetoric has reached epic
02:29proportions, hasn't it? And every day there's a new article with a new soundbite of some description.
02:35I think the reality is, to your point, ESG has been around for the last five to seven years.
02:41A way of incorporating sustainability considerations into financial decision making is ultimately where
02:48it came from. And its origins are very much in risk management and assessing businesses through
02:53a lens of risk associated with some of the key areas of sustainability. I think what Trump has
03:01has been able to leverage is the same as with any new industry and any new area of consideration for
03:10businesses is what we'd like to talk about, the pendulum effect, don't we? Which is, for too long,
03:16ESG wasn't really considered and the risks weren't really factored into decision making.
03:21And the last five to seven years have seen a significant shift and the pendulum has gone
03:27in a very far direction in the other way.
03:30So I think that's really interesting. I just want to unpack that, as they say. So I think
03:36I've been editor at Insider about nine years now. And when I started, I think if I'd have put ESG on
03:43the front page of the magazine, it would have been a huge turnoff to a lot of business owners,
03:49really, because ultimately a business owner would say, well, you know, we're about profit.
03:53You know, you'd have certain businesses, wouldn't you, that were very, very green,
03:58as you might say. But generally people were about, well, what's the bottom line? Is this making
04:03profit and stuff? And obviously people have always done things, they, you know, recycle paper or
04:09whatever the case. But this ESG has moved in such a way now that it seems like it's top of the agenda
04:17for everyone. And I wonder whether there is an element of where Trump comes in and he kind of
04:25appeals to that old fashioned, you know, common sense approach of, well, come on, do we really,
04:32do we really want these giant wind farms? I wonder whether that kind of people are saying,
04:39you know, this has gone a bit beyond. And so is that what you're saying with the pendulum effect of
04:44it's actually swung that way. And its natural position is to settle somewhere in the middle,
04:51do you think?
04:51I think, yes, I think the reality is that Trump is capitalising on the way in which some businesses
04:56have adopted certain elements of ESG practices. And we've all seen stories and headlines around
05:01DE&I and businesses taking certain approaches to, you know, only hiring women for the next 10 roles
05:08that they're looking to, looking to recruit, etc. And I think, I think Trump is able to leverage those
05:14kinds of practices, which are in the extreme, which aren't necessarily the right choices for
05:20businesses to be taking. And I certainly don't think anyone working in ESG would necessarily be
05:25advocating for that level of extreme response. So instinctively, you're going to have a pushback
05:32against those, you're going to have an opportunity for somebody to step forward. And as part of all
05:38of the other things, he talks about being able to say that that's where he's going to focus,
05:44push back on and bring in, you know, legislation accordingly. But actually, that's curbing some
05:51of the extremes of the adoption of ESG rather than the principles of ESG.
05:56So then on to the principles, then. If we were once in a stage where nobody thought about ESG,
06:02and now we've potentially gone to a point where you might say it's getting a bit silly with some of the
06:09extremes. Yeah.
06:11Yeah. So how should businesses, you know, what is that middle ground, that happy medium?
06:17How should a business, you know, that wants to be, that wants to do the right thing, that does care
06:23about the planet, but at the same time, just wants to run their business in a really sensible way?
06:28Yeah.
06:29How should they think of ESG?
06:31So the reality is that ESG, which came from a risk mitigation origin, increasingly for the last
06:39two to three years, in particular, has become a value creation tool. And it is a value creation tool
06:45when done right. So actually, the principles of ESG are about growth, are about supporting growth
06:51aspirations of the business. And it's how you leverage the different aspects of ESG in the way
06:56that's right for your business in the particular sector that you operate in, that's going to support
07:02and enhance that growth. So really what we're talking about, ESG isn't rocket science, as much as
07:09some people, you know, there's an enormous number of acronyms and complexity and technical language.
07:15The reality is what we're talking about is good business.
07:17Because what we're talking about is a business that operates efficiently. And we've all seen huge
07:22volatility in the energy markets, for example. So why wouldn't you want to operate efficiently?
07:28Why wouldn't you want to look after the people who work for you? Because talent retention is much
07:34cheaper than talent attraction and happy workforce is a productive workforce. Why wouldn't you want to
07:40look at mitigating risks in your supply chain and understanding where those risks lie? Because it's all
07:45about business continuity. It's all about, you know, risk to your business being able to continue to
07:50deliver its operations and goods and services that it's providing to the market. Why wouldn't you have
07:55good governance in place to make sure that you're tracking and measuring that impact and that you
08:00can talk to stakeholders about it? Fundamentally, the principles of ESG are just good business.
08:06They're not anything more than that. It's about doing it in the right way and doing it in the right
08:11way for your business. But ultimately, that's all it is. So the idea that ESG is going to go away
08:17because, you know, of all of the noise in the media at the moment. And, you know, I've seen articles
08:22with the headlines saying, is this the beginning of the end of ESG? Feels really counterintuitive
08:28because actually the principles of ESG are just directly aligned with growth of businesses.
08:33So maybe this is the way people need to think of it. You know, you don't have to be an eco-warrior
08:37to not want to waste stuff. Yeah. You know, you don't need to be an eco-warrior to want your
08:44staff to be productive. Yeah. You know, I'm sure Donald Trump wants the people who work at the
08:51Trump Plaza to be productive. So, you know, and that's just that's as old as time, isn't it?
08:57Knowing that if you treat people well, they're more likely to want to do a good job for you.
09:02Exactly. And that's it in a nutshell. That's what ESG actually is. And when we talk about
09:08the states, the reality is we live in a global economy, right? And when you look at the regulatory
09:13and legislative landscape globally, we have new legislation from Japan recently. We have new
09:20legislation, ESG legislation from Brazil, Australia, Singapore. You know, Europe has one of the most
09:28advanced ESG agendas globally, 454 individual pieces of ESG related legislation coming out
09:38of Europe, all of which impacts a global marketplace. And any American business that wants to operate
09:44outside of America is going to still have to comply with those, with those laws and those
09:49regulations. So this, I think this year is, is the year of supply chain transparency. We've
09:55got new legislation coming out of Europe, some of which, when it kicks in, can impact on UK
10:01businesses, if they sell goods or services into any European marketplace. And that's all focused
10:08on transparency of supply chain and due diligence checking within the supply chain. So that's
10:14going to be very much a key topic for the coming year. I think AI is a really interesting topic
10:22from an ESG perspective. Again, huge amount of noise and awareness of the opportunities that AI
10:31brings. And I think from an ESG perspective, there's huge scope for it to support decarbonisation,
10:37technology advancements, you know, certainly reporting for businesses and making all of that
10:42simpler. There's lots of benefits, but it actually comes with a significant environmental impact.
10:47Well those servers use a lot of juice apparently. Funny that. Yep, they do. And, and water, which
10:53is, which is a piece that's not always, always talked about, but water scarcity is probably
10:58one of the biggest risks that we're all facing at the moment. Chat GPT searches daily use 152
11:07million litres of water. So, you know, these are, these are very much real challenges that we're
11:13seeing coming with the emergence of AI. So I think that's going to be really interesting
11:17for this year. I think this has been really interesting, Joe, and I appreciate you coming
11:21in. And I think there's some really good messages there for our readers. I never know whether
11:27to call them readers or viewers, they read the mag, they watch this. Which I think is just
11:33apply a common sense approach when it comes to these ESG. You know, you don't want to waste
11:38of, you want to treat people well, and maybe don't be, don't swing too far like that, like
11:43that pendulum, I guess. I think that's, yeah, a good summary. The reality is ESG is here to
11:49stay. ESG is about good business. ESG absolutely can make your business worth more money and can
11:57support the growth aspirations that you have for it. So yes, it's not going anywhere, but
12:03maybe do it in the right way. Absolutely. Joe, thanks so much.
12:07Thank you. Thank you.