ESG – Environmental Social and Governance
ESG stands for Environmental, Social and Governance. This is also called sustainability in many cases.
Today’s business leader needs to consider not only people and profit, but also planet. While sustainability may have been seen as a secondary concern or nice-to-have branding activity in the past, that’s changing. Investors and financial institutions are increasingly including environmental, social and governance (ESG) factors in their decision-making. As a result, a company’s ESG performance can directly affect its ability to secure external funding.
More banks and financial institutions, such as Nordea, are integrating ESG factors into their models, according to Aleksi Lehtonen, Head of Business Banking Finland.
“If we are to lend money to a business customer, we want to know that the customer has a sustainable business model. It’s all about evaluating risks. Long-lasting banking relationships are simply good business, both for us as a bank and for customers as well as society at large,” he says.
How are Nordic businesses performing in the sustainability area?
Understanding companies’ ESG performance is therefore vital. Against this backdrop, Nordea launched its Business Insight study to explore how far Nordic businesses have come on their sustainability journey, as well as shed light on any challenges that stand in their way.
There are major differences in how far businesses have come in integrating sustainability into their operations.
Finnish, and to some extent Swedish, companies report a higher integration of sustainability into their operations, compared to companies in Norway and Denmark. Not only are there differences depending on the country, but also the size of the business. Larger businesses have a stronger grip on sustainability in their operations and strategy, compared to small and medium sized businesses.
Finland reports the highest perceived ESG performance, while Denmark reports the lowest.
As many as 68% of Finnish corporations report to have integrated sustainability into their business models, while Norway trails at 33% and Denmark at 39%. On average, large businesses show the highest perceived ESG performance, with the exception of Finland. In Finland we see the highest perceived performance among small businesses.
A large share of businesses express low knowledge about their risk and development areas when it comes to ESG.
Governance stands out as an area where businesses have the least knowledge. In the environmental space, the top three risk and development areas mentioned were generation of waste and noise; water and energy; and use of raw materials. Smaller businesses are the ones least aware of the risks connected to different areas of ESG. Our experts share some ideas and perspectives in this article.
There is a well-documented bias between how important businesses think sustainability is and what they actually do.
The perceived importance of sustainability tends to grow with the size of the company. In addition, the so-called “attitude-behavioral” gap, or the difference between what companies think and actually do, widens as the company size gets smaller.
Customer demand and brand are the primary reasons for focusing on sustainability.
Small companies highlight customer demand as their top reason for focusing on sustainability, while reputation and brand are the main drivers for medium and large businesses.
The Nordea Business Insight study was conducted across the Nordics in August and September 2019, focusing on corporates of all sizes. The respondent base totaling 2,145 respondents was distributed as follows: Sweden 615, Norway 530, Finland 536, and Denmark 464. The base was collected through Norstat’s Nordic Panels. The study is unique, to our knowledge, in its Nordic outlook, its themes and its ability to distinguish results between small, medium and large sized companies. Currently most barometers/indexes are focused on small sized companies due to cost and feasibility.
 Size of companies in the report: small sized companies 0-19 employees; medium sized companies 20-100 employees; and large sized companies 100+ employees.
Size clearly matters when it comes to the implementation of sustainability initiatives, with larger companies reporting on their carbon footprint, investing in green technology and integrating sustainability into their business models to a greater extent than smaller companies. But the sustainability focus will only increase in the Nordic markets, according to Lehtonen.
“The clear message we receive in our dialogue with our corporate customers is that the journey towards more sustainable businesses has just started. Exactly how to get there will most likely differ depending on the market as well as the type of business,” he adds. For example, manufacturing industries and natural resources producers will likely focus more on environmental issues, while the service sector will focus more on social responsibility and corporate governance, he says.
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