24 July 2020 by Sonia Sharma
Chuka Umunna talks to Governance and Compliance about his new roles focussed on environmental, social and governance (ESG) issues and the need for responsible investing
Earlier this year that Chuka Umunna, Former Shadow Secretary of State for Business, Innovation and Skills, was appointed as a non-executive director to Signal AI’s Advisory Board and Head of ESG at Edelman.
Serving for a decade in numerous senior positions in Parliament, Umunna led on economic, business and trade policy, with ESG at its core, as well as spending several years advising businesses on their most challenging disruptive, transactional and advisory matters as a corporate employment lawyer.
“In order to rebuild our society following this crisis, we must work together to ignite innovation and create wealth, reduce inequalities and ensure that globalisation works for everyone. It is vital that we ensure the concerns of all stakeholders are properly integrated into corporate decision making” he says. Working as a strategic corporate advisor on business-critical issues that impact on reputation and narrative, Umunna will help to build long-term value for investors and shareholders. We spoke to Umunna to find out more about the impact of COVID-19 on ESG and the role the governance professional plays in bringing these matters to the forefront.
Signal AI’s Artificial Intelligence-powered solutions provide business leaders with insight to make better decisions. The platform enables organisations to track defined challenges in real time, from competitive landscape and changes to regulation, to monitoring reputation or supply chain. The platform gathers the relevant data and applies its proprietary machine learning analysis, in turn empowering smarter and faster decisions. Their clients include PR and communications professionals, compliance and risk experts, in-house and agency teams, and senior business and public sector leaders.
I’ll be helping Signal AI generally on their Advisory Board but also assisting the company specifically to provide AI solutions to companies to help in the process of integrating environmental, social and governance (ESG) factors into corporate decision making.
At Edelman I lead the ESG consultancy practice which provides clients with counsel on managing environmental, social and governance factors (ESG), based out of Edelman’s specialist capital markets and financial services team. A company’s ability to manage ESG factors is widely viewed by investors as a proxy for prudent risk management and increasingly impacts on consumer decisions. Edelman has two decades experience in measuring companies’ trust and credibility on ESG through our flagship Trust Barometer.
In the short term, Covid-19, the aftermath of the tragic death of George Floyd and, before that, the advent of the #MeToo movement, has turbo charged the ESG arena and led citizens to demand good value and good values from the companies they buy from, work for and invest in. In particular younger generations – millennials and subsequent cohorts – are demanding far more from those who manage their family savings – they don’t want, for example, their money being invested in dirty, polluting business activities.
The key is how the capital markets make these assessments – they use ESG ratings agencies, and fund managers have their own methodologies to do so too. For example, Refinitiv – an ESG ratings agency - has different environmental sub-sets against which companies are measured which look at their resource use, emissions and innovation. The resource use relates to the company’s capacity to reduce the use of materials, energy or water, and to find more eco-efficient solutions by improving supply chain management. The emission reduction score measures a company’s commitment and effectiveness towards reducing environmental emissions in the production and operational processes. And the innovation score looks at a company’s capacity to reduce the environmental costs and burdens for its customers, creating new market opportunities through new environmental technologies and processes or eco-designed products.
I think companies are taking their ESG profiles more and more seriously because it impacts on the cost and access to capital, their share price and profitability.
The reason Boards take a more active role in the management of ESG, than they do in relation to the other issues were the C-suite is more or less left to it, is because of ESG’s role in risk management. Avoiding the kinds of problems, for example, that fast fashion companies have had with supply chain integrity and good practice is an ESG issue – central to the “S”part of ESG – which Boards need to take an active interest in. You need only look at the adverse impact on a company’s share price when it is subject to an ESG controversy to understand why Boards take such an active interest. The governance professional can help senior leadership with all of this by putting in to place practices and procedures to help manage ESG. Edelman’s ESG consultancy and Signal AI’s technology can certainly help in this regard.
There is a lot to say here which cannot be done in one sentence. Above all, you need to believe in integrating ESG into your decision making not only because it is the right thing to do but also because in the long term it will improve profitability and sustainable growth. If you simply see action in this arena as a matter of PR and good presentation, you will fail because you will get found out pretty quickly.
As Shadow Business Secretary I was a leading advocate of responsible and stakeholder capitalism in the UK parliament from 2011, and afterwards in other senior roles I held in the House of Commons. I led on public policy on the opposition benches which was primarily concerned with ESG. My big first speech in post in 2011 was to Bloomberg and it was all about ESG. This was informed by just under a decade experience as a practitioner dealing with the “S” and “G” part of ESG as a corporate employment lawyer, before my election.
It has helped ESG go further up the agenda, for sure. Not only because it has brought added focus on the disproportionate impact of it on different groups and equality issues but also because ESG funds have outperformed others during this crisis. For example, in the first quarter of 2020, when global markets were blown up by coronavirus, the S&P 500 ESG index beat the normal index by 0.6%.
I don’t buy the argument that we will all be working from home but I suspect work will revolve less around the office and there will be more flexibility in working practices. Gone will be the days when you were automatically expected to be at your desk at 9am every morning, but you will probably still spend the most time in the office because of the need to collaborate and kick around ideas in person.