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ESG leaders – performance for all stakeholders

ESG leaders incorporate specific goals into their business strategy and lead by example. But what does that mean in practice? We present two case studies.

 

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How companies score in terms of environmental, social and governance (ESG) criteria has become increasingly relevant for investors. Companies are expected to pay attention to the interests of society at large – for their own benefit and for that of their shareholders. Why is this so? Because the future success of a company will depend on it.

What do the ESG factors stand for?
The environmental dimension includes assessing a company’s interdependencies with climate change, pollution, biodiversity or water and the related risk-mitigation strategies. In terms of the social dimension, product safety, working conditions, employee diversity and community engagement are in focus. For governance, executive compensation, accounting practices, board structures and business ethics are topics under watch.

From theory to practice
In the following, we dig deeper into the operations and activities of two companies, which are considered to be ESG leaders. Both organisations serve as case studies and should not be regarded as investment recommendations.

Case study 1: ENEL
Why is ENEL an ESG leader? Creating long-term sustainable value for all stakeholders is a primary goal for Enel, which has an AAA rating from MSCI ESG. Climate change, atmospheric emissions, water resource management, biodiversity, the circular economy, health and safety, diversity, personnel management and development, relations with communities, ethical conduct and human rights are just some of the topics that Enel targets in its ESG strategy. 

Closely aligned with the United Nations Sustainable Development Goals
Enel’s sustainability plan follows the 17 United Nation’s (UN) Sustainable Development Goals and is based on four pillars:
1) growth across low-carbon technologies and services;
2) operational improvement for a better service;
3) engaging local communities and
4) engaging the people they work with.

The company targets to lower the carbon intensity of its power generation by 70% in 2030 compared to 2017. Some 74% of current coal power generation will be closed by 2024. In the area of energy efficiency and smart mobility, the company expects to have some 47 million smart meters installed and 455,000 charging stations for electric mobility by 2021 and to invest EUR5.4bn in digitalisation in the 2019–2021 period.

Considerable focus is dedicated to ENEL’s personnel, who are considered to be key players in the strategy. This focus aims to strengthen their roles and responsibilities within the organisation, providing them with tools for managing the energy transition through clear and precise objectives in terms of performance appraisals, company culture, development of digital skills (with the aim of involving 100% of people in dedicated training) and the promotion of diversity (with the intention of reaching a share of 50% women for the 2021 selection process).

Case study 2: Microsoft
Why is Microsoft an ESG leader? Microsoft has had a MSCI ESG rating of AAA since 2016. The company scores highly in privacy and data security topics as the company spends significantly on its research and development budget to safeguard data and run high levels of cybersecurity protection in its data centres worldwide.

For its employees, Microsoft appears to offer a strong combination of pay, benefits and professional development pathways in order to continue attracting some of the industry’s best talent. Lately, Microsoft has faced some scrutiny for gender discrimination similar to some of its larger information technology peers such as Alphabet, Facebook and Oracle. However, the company has taken proactive steps, such as providing enterprise-wide diversity training. 

Increasing the portion of renewable energy
An interesting example of how Microsoft wants to tackle environmental issues is related to the operation of data centre facilities worldwide. These facilities and their cooling systems consume lots of energy, representing an increasing portion of energy consumption. These data centres require relentless electric power to sustain operations and deliver data around the globe at an ever-increasing speed with exponentially increasing data volumes.

Data centres create extreme heat inside the servers doing the processing and inside the building housing the servers, which creates demand for power from cooling systems. This leads to extreme levels of power consumption, similar to the needs of a single country such as the UK (an industrialised country with over 66 million inhabitants) in one year. Microsoft is tackling this issue with operations 100% powered by renewables; this ranks the organisation as the second-largest green power purchaser in the US. Microsoft triggered its so-called Project Natick in 2014, aimed at testing the viability of 100% sustainable data centres submerged off the coasts of major population centres.