Why be a good company? What benefits does being sustainable, diverse, and inclusive bring? There are several key advantages. But the one that most people think of first is sometimes the least important.
Being a good company isn’t always enough to drive revenues higher, but it can increase a firm’s stock market value and make it easier to hire and retain key employees.
Last month, I was on a call with Kaaren Hilsen, CEO of Telenor Sweden, and her team. We were talking about cloud computing and issues around the cloud’s impact on sustainability and the environment. She asked me just how large an issue sustainability is globally. Is it real, how big is it, is it here to stay?
In answering her question, I thought it was important to broaden the topic to environmental, social, and governance (ESG) factors since concerns around the environment and gender and racial diversity and inclusion are increasingly fused in the minds of consumers, investors, and workers. Hilsen also agreed to co-author this article. Her comments can be found below each of mine.
1. Being good can drive sales. Sometimes.
US consumers do buy sustainable products in the consumer packaged goods categories, according to a pre-pandemic Harvard Business Review article:
“Products that had a sustainability claim on-pack accounted for 16.6% of the market in 2018, up from 14.3% in 2013, and delivered nearly $114 billion in sales, up 29% from 2013. Most important, products marketed as sustainable grew 5.6 times faster than those that were not. In more than 90% of the CPG categories, sustainability-marketed products grew faster than their conventional counterparts.”
Footwear and apparel companies have also seen similar effects as they’ve driven sales growth through ads and donations to social justice causes.
Is telecom the same?
There is a myth that consumers choose communication providers based only on price. The choice is more complicated than that. Consumers also consider speeds (both up and down), data allowances, voice quality, coverage, handsets, TV bundles, and such new network technologies as 5G service. But so far, issues around ESG are not really on their radar.
I know all this because Deloitte has been conducting the annual Global Mobile Consumer Survey/Digital Consumer Trends survey since 2010. Numbers vary each year, but in 2020 Deloitte surveyed 39,000 consumers across 16 countries. I talk to telcos in Canada and around the world, about 50 carriers annually. In the past few years, I have met with operators in the Americas, Asia, Europe, the Middle East, Africa, and an island in the middle of the Indian Ocean: Mauritius, since you asked. In almost all of those meetings we talk about speeds and coverage and TV and 5G and so on.
But I have never once had a conversation about how being more sustainable, diverse, or inclusive will help these telcos gain market share or reduce churn. Although consumers care intensely about many things when choosing mobile providers, ESG factors don’t appear to be among them, at least not yet.
To be clear, sustainability is a topic that every operator talks with me about: All fixed and mobile networks and data centers use energy, and anything that carriers can do to reduce energy use is not only good for the planet, but has a direct impact on their bottom lines. Equally, many of them are passionate about diversity, especially around women in IT. But, once again, that’s more of an internal consideration than a way of driving sales.
But if being good, in addition to doing the right thing, doesn’t help attract subscribers, what else can we do?
Kaaren Hilsen: Actually, I think that you will see that ESG will matter even more going forward, not only for customers, but also for companies attracting and retaining talents and we see this increasingly in Telenor. Responsible business is really the foundation of building trust with our customers, partners, and employees.
And I disagree with Duncan: ESG does matter to customers more than he thinks. We talk about sustainability (in depth) on our website, in our stores, and we have detailed annual disclosure about our ESG scorecard.
Consumers in Sweden care very much about ESG issues, even from their telecom companies. Being good around ESG matters to our consumer customers, and if we were less good it would hurt us. Plus, we’re one of the largest B2B telecoms companies in Sweden: I meet with many executives from those businesses each year, and conversations around our sustainability are now part of their buying process. That’s why I’m so proud that Telenor Sweden was the top telecom company in the Swedish B2B Sustainable Brand Index in 2019! Being green helps us win customers, both consumers and businesses.
GSMA, the global industry association for mobile operators, also takes ESG issues seriously and has launched “Connectivity for Good” that includes a green transition through mobile technology and an initiative called “Connected Women.” These are just two examples.
2. Being good is an investment in investability.
Back in 1994. I became portfolio manager for a pension account for three Canadian church organizations: They were “ethical” mandates, meaning I could not invest in companies that made tobacco products, alcoholic beverages, or weapons. Aside from that, the world was my investing oyster.
I didn’t even try to select on the basis of gender diversity back then: In the Fortune 500, the percentage of female CEOs in 1995 was a robust 0.0%. There were no sustainability screens for choosing one company over another.
Fast-forward 26 years and ESG compliance is the new “You must be at least this tall to go on this ride.” In a February 2020 report, Deloitte predicted that ESG-mandated assets in the United States will grow three times as fast as non-ESG mandated assets and make up half of all professionally managed assets by 2025.
In December 2020, NASDAQ discussed a proposal to delist companies that didn’t have at least one woman director and another director who identifies as an underrepresented minority or LGBTQ+. The Nordics have been early leaders in this trend: Norway began enforcing a law that women make up at least 40% of corporate boards back in 2008, and both France and Italy have taken similar steps. Gender diversity is also going beyond the boardroom to the executive suite: In late 2020, Germany passed a law requiring senior management of certain listed companies be at least 30% female.
This trend has been underway for years, but “ESG investing came of age in 2020”: ESG bond values reached nearly half a trillion dollars and stocks with higher ESG ratings outperformed in almost every month. Investors are doing well by doing good.
As of 2020, ESG mutual funds hit $1.7 trillion, up 50% year over year, while firms committing to integrate ESG into their investing managed a collective $100 trillion.
And it isn’t just Fortune 500 companies, or even publicly listed companies. My wife, Barbara Stewart, is a leading researcher on women and finance, and an adviser to a North American private equity and venture capital firm. As part of her recent global research, she found that women were more likely to invest in causes and concerns that matter to them, with issues around sustainability and diversity and inclusion ranking high on the list. Women are more likely than men to invest with an ESG lens, female advisers are more likely to recommend ESG investing, and ESG portfolio managers and subject matter experts are more likely to be women, to the extent that many recent ESG panels are all women.
The firm Barbara advises is moving to reporting on ESG factors for all of its existing investments, as well as all new investments going forward. There has been an entire complex journey around this, and Barbara gave a presentation with a Nordic ESG consultant and expert at a North American investing conference that was adapted into “ESG Matters.”
At almost all levels, companies that wish to receive investments or be traded appear to need to report on ESG issues and even achieve certain goals, either through soft or increasingly hard quotas. At a minimum.
Hilsen: Telenor Sweden is part of Telenor Group, which trades on the Oslo Stock Exchange and as American depositary receipts (ADRs) in the US market. We have hundreds of institutional shareholders, most of whom care about ESG issues. In fact, about a third of our shares are held by ESG investors.
We’re proud to be in the top quartile of all telecommunications services companies worldwide on our 2021 ESG score, and hope to do even better in future. Telenor publishes an independently audited scorecard around sustainability.
We didn’t start doing this only last year, we’ve been doing it annually since 2011. Women make up over 40% of both our board of directors and our group executive management. In my executive management team in Sweden, I have three men and four women and four different nationalities.
From an investor perspective, I think that we are near a tipping point at which companies that aren’t committed to ESG causes will not be acceptable as investments for most investing firms. And that companies that excel at ESG will be seen as more attractive and less risky and see higher ownership and therefore superior shareholder returns.
3. Being good will win the war for talent.
As of 2019, 69% of US employers were having trouble finding the right people, up from 14% in 2010. In a 2018 report from Korn Ferry, they suggest that by 2030, the talent shortage could create 85 million unfilled jobs and $8.5 trillion in unfulfilled revenue. This applies to the tech, media, and telecom (TMT) industry as well: The talent gap for TMT will grow to 4.3 million people and amount to nearly $450 billion in unrealized output, according to the report.
Every telecom company I talk to sees the talent crunch as a looming crisis. They have many excellent employees today. But many of those are older and nearing retirement or have skills that are less relevant in 2020 than when they were hired 10 years ago. They all say they need thousands of data scientists, machine learning experts, and people who are mobile-first, understand user experience better, etc. They know that the people they need to hire are going to mainly be 20 to 35 years old, and therefore mainly millennials now, and Generation Z over the next decade.
Roughly half (47%) of millennials make diversity a priority when considering an employer, according to a 2019 report. For Gen Z, that is even higher: “83% of Gen Z candidates said that a company’s commitment to diversity and inclusion is important when choosing an employer,” a 2020 survey found.
Sustainability is valued high as well:, 70% of millennials prefer to work in a company that prioritizes sustainability and 75% said they were willing to work for less money in order to work for an environmentally aware firm. Gen Z surveys show similar findings:
- “Nearly half of survey respondents said they would only work for a company that implemented sustainable business practices.
- “56% said that sustainability will be especially key to engaging the workers of the future.
- “40% said they would look for a new job if their company didn’t follow sustainable business practices.”
TMT companies know all this. According to Deloitte Canada’s 2020 Fast 50 CEO survey, 86% of respondents agreed that being an inclusive workplace was one of the top three drivers of success, up six points from only a year earlier.
Hilsen: The statistics also confirm my personal experience. We want to do good, because that’s who we are at Telenor. However, we also must do good as it is important to our customers, partners, and employees.
Many studies have proven that diversity drives innovation, and innovation is what drives any company forward, especially in telecommunications. In order to be sustainable, both from financial and other perspectives, diversity and inclusion are at the core of everything we do in Telenor. I personally ensure that it is incorporated in the way we do business, whether that is in appointing leaders with different backgrounds, experiences, and personalities, or making people in the company feel psychological safety as this will allow them to perform their best.
I should also point out that being sustainable and diverse and inclusive is the right thing to do. What a wonderful thing it is that embracing ESG goals helps companies win consumer and business customers, attract investors, hire and retain top talent, and drive innovation, plus do the right thing.
It actually makes me very optimistic about the future that more and more people appreciate how good values go hand in hand with good business.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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Duncan Stewart, CFA
