WHY A ROBUST, COHERENT, AND TRANSPARENT ESG STRATEGY IS ESSENTIAL IN TODAY’S DIGITAL WORLD

By Ben Sainter

On 12 May 2021, the value of Bitcoin tumbled by more than 10% after Elon Musk announced by tweet that Tesla would no longer be accepting the cryptocurrency as payment for any of its vehicles – a change of direction for Tesla, having purchased a $1.5 billion Bitcoin reserve just months earlier in February. While neither the fall of the notoriously volatile currency nor Mr Musk causing stocks to plummet with a single tweet are unprecedented occurrences, the context surrounding this particular event has some interesting implications.

Musk explained Tesla’s decision to stop accepting Bitcoin as payment by citing concerns about the environmental ramifications of Bitcoin’s energy footprint. Despite speculation swirling as to whether this was the true motivation behind Tesla’s decision, the process of mining Bitcoin does indeed consume vast amounts of electricity: according to the University of Cambridge’s Bitcoin Electricity Consumption Index, the Bitcoin network uses 142.59 TWh of electricity a year – higher than the consumption of many entire countries. That was the only justification Musk needed to give, resulting in a profoundly negative impact on Bitcoin’s value and reputation. Perhaps most importantly, the announcement brought environmental concerns to the forefront of conversations about the viability of cryptocurrency in the future.

ESG’s rising value in an environmentally-conscious world

Demonstrating environmental viability in a net-zero world is becoming increasingly vital for businesses, as the climate crisis becomes an ever-more potent issue in the minds of both investors and customers. The focus on climate is set to increase further as action becomes increasingly urgent, the pandemic fades, and we turn our collective gaze to economic and social recovery and the future. Our response to the climate crisis is arguably the most important challenge we will face, and will define the mid-21st century and beyond. Human civilisation has arrived at a critical juncture, and a greener world is vital for our future prosperity. Businesses must be prepared for what that world will look like, and benefits will be seen by those who take the opportunity to capitalise on playing a part in the transition to a net-zero world.

This is where ESG comes in. The importance of environmental, social, and corporate governance (ESG) matters has been growing exponentially over the course of the past decade, and will only become a more central part of business practices as the climate crisis crystallises at the forefront of public consciousness in the post-pandemic world. While most companies may not be responsible for the same level of environmental damage as Bitcoin or have the celebrity attention of Elon Musk, the Bitcoin case illustrates that ESG is a crucial area for businesses to prioritise. For companies of all sizes, paying attention to ESG as an integral part of their strategy will benefit the business and protect its reputation, as well as having wider advantages for society and the planet.

What increasing publicity about ESG means for businesses

The extraordinary amount of attention given to corporate responsibility in the transition to a net-zero world, the growth of online resources on the matter, and an ever-increasing sensitivity to greenwashing all point to the importance of a robust, coherent, and transparent ESG strategy in today’s digital world. And it’s no longer just the ever-watchful eyes of Twitter activists that businesses need to consider. ESG information on businesses is now readily available and widely sought-after by investors and potential customers alike.

Sites such as Tortoise Media (with its Responsibility100 Index) rank companies on their ESG commitments, and the emergence of dedicated climate sections of influential business media outlets such as the Financial Times and Bloomberg mean that environment-related shortcomings no longer go unnoticed – but neither do successes. A recent McKinsey survey found that when businesses engaged with sustainability practices in the right way, a quarter of respondents saw immediate modest or significant value gains, with a further half expected to do so in the next five years. And companies who successfully engage with sustainability practices can expect their value to increase by an average of 4-6%. Implementing ESG strategies and initiatives will benefit businesses now, and prepare them for the future. Any value gained from well-implemented environmental initiatives today will only rise as the world begins to shift more concertedly in the direction of sustainability, and companies that find themselves left behind may find it difficult to catch up. Matters of environmental, social, and corporate governance are now a necessity for companies, not just to ensure a good reputational standing, but increasingly as a core facet of a successful business.