Ariel White-Tsimikalis is a Partner in the M&A and Corporate Finance team of Bryan Cave Leighton Paisner LLP in London. She is also Global Co-Leader of the firm’s Banking sector group and a member of the firm’s ESG Group. Ariel specialises in advising banks, corporates and private equity funds on equity capital markets transactions, corporate governance and general public company advisory matters.

In addition to her specialism in the “G” of ESG, Ariel is particularly active in the “S” space; specifically, Diversity & Inclusion. She is a Committee member of the Women Lawyers Division of the Law Society of England & Wales, Member of the Global Advisory Board of the Women in Law Empowerment Forum (WILEF), Member of the Senior Advisory Board of Lex-Lead, an organisation focused on the development of lawyers in developing nations across the globe, and Chair of the Advisory Board of The LEAD Curriculum, a not-for-profit organisation which provides “service leadership” training to students from underprivileged backgrounds.

She is a regular contributor to ESG thought leadership and frequently participates in speaking engagements focused on “G” and “S” matters.

What is ESG?

ESG stands for Environmental, Social and Governance. The nebulous world of ESG can be summed up in two words “mindful business”. It is an awareness and understanding of the externalities that a particular business can cause or impact. ESG is about recognising and measuring these externalities and considering ways they can be internalised so that they are considered and integrated into an organisation’s Board strategy; risk management, operations, financial controls and governance.

Successful senior leaders are increasingly recognising that they have a broader role than simply generating return for shareholders, and that their businesses impact a wider group of stakeholders including the environment, the local community, regulators and the well-being of employees, amongst other things. Approaching business management through an ESG lens redirects focus from a shareholder-centric model to a stakeholder-centric one and ultimately to a model that is focused on good business.

Ultimately organisations that are aligned with ESG-driven values have happier employees,  diverse workforces, are more mindful of their environmental footprint and are in a better position to add social value to their communities. They are also more likely to retain good talent and get the best from their employees, which positively impacts their bottom line. In short, well-governed companies operating a mindful business are better for society.

How is ESG growing in importance?

Environment, Social and Governance are interwoven. The Environment and Social aspects are often driven by corporate and social responsibility, business ethics  and policy. The importance of  Governance  is that it anchors these policies and aspirations into frameworks and actions.

For example, the targets relating to diversity on boards set by  the Alexander-Hampton and Parker Reviews have made D&I and social justice issues more tangible. Governance reframes the conversation and makes it easier to communicate the connection between the “S” and “E” and commercial advantage.

Governance has also helped to add  weight to the Social components of ESG, moving them from company passion projects to measurable targets, greater accountability through reporting and disclosure and embedded values within an organisation through a greater focus on culture in order to drive change.

In essence, good governance means balancing the intersection with “S” and “E”.

Similarly, in recent years, there has been greater focus on the role of business in climate change. Companies are increasingly being asked to consider their environmental impact and to mitigate the risks. The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information.

Climate-related financial disclosure requirements became mandatory for premium listed companies in respect of financial years from 1 January 2021. This will eventually trickle down with the requirements expected to come into force across the entire UK economy by 2025 according to the UK Government.

Investors increasingly consider companies that perform well on ESG less risky, better-positioned for the long-term and more resilient to uncertainty and future challenges.

It is unsurprising therefore why ESG, and the intersection between Environment, Social and Governance, is growing in importance.

What are the next steps?

ESG is likely to be vital to success in a post-Covid world and Governance is at the center of this. While  there is not a standardised framework across ESG, clear and credible ESG information is critically important. There is increasing convergence on this front and the development of a more harmonised framework of ESG credentials is inevitable, it is more a question of when rather than how and if.

As a starting point, businesses need to be clear on where they are currently in order to have a proper benchmark against which to measure where they want to be. If they do not have accurate data already, procedures need to be implemented to collect the appropriate data.

When an organisation has concrete data, it is feasible to track progress over time, assess what the impact was, and what needs to be done differently. It also enables senior leaders to hold themselves (and others) accountable for successes and failures. After all, what gets measured, gets done.

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