Is committing to ESG the modern equivalent of Pascal’s Wager?
ESG (Environmental, Social and Governance) is something many industries have had to worry about for some time. Well, ‘worry’ is a strong term; sceptics say there’s plenty of evidence that companies say one thing and do another here, and there’s some evidence investors have cooled on it in some markets. Maybe we can forget about this TLA for the time being, as some boards admit they have?
There is a business argument of sorts in that stance. But then we open our windows to see we’re living in a planet experiencing global boiling, it suddenly does seem a relevant issue for now; and for the mid-term, the young, smart Gen Z and Millennial talent we want to hire say that at least two of those words, Environmental and Social, matter a hell of a lot to them when they’re thinking about potential employers.
The evidence suggests that there is genuine economic benefit in beefing up your ESG activity. McKinsey says that value derives from bottom line savings in being more efficient with how you use your resources, plus the social and reputational benefit you gain from having a strong ESG message, for example. It even cites ultra-free market thinker Milton Friedman as an authority: “
“It may well be in the long-run interest of a corporation to devote resources to providing amenities to [its] community or to improving its government [as that] may make it easier to attract desirable employees…or have other worthwhile effects.”
Corporations will be buying billions of professional service help to get aligned with ESG, reckons IDC
A lot of people think he was right—with IT number crunchers IDC recently (2022) predicting ESG consulting services spending will grow to $158 billion in 2025. But that is at least partly driven by growing acknowledgement of the letter we haven’t really mentioned yet, the ‘G’ in ESG—Governance. Corporations will be buying all those billions of professional service help to get them better aligned with all the ESG compliance and regulations coming down the pike.
And there’s a lot of that coming—indeed, some of it’s here already. As IDC notes, “This imperative to act sustainably in all facets of an organisation is becoming more powerful as mandated sustainability disclosures draw nearer.
While many organisations are already reporting on their climate-related performance voluntarily (Scope 1 and 2 emissions, carbon intensity, etc.), professional services will still be needed to increase the process efficiency as more resource-intensive reporting becomes mandatory.”
To name just a few of the ESG regs your CFO’s worrying about right now, the EU’s just released a raft of new sustainability reporting standards, its European Sustainability Reporting Standards, part of its wider Corporate Sustainability Reporting Directive work; in the US, though Republicans detest them, a bunch of ESG reporting laws are being drafted and seem likely to come into effect very soon.
What’s all this got to do with telecoms, I hear you say? Simple: no ESG story—perhaps you won’t make it onto vendor short-lists. ESG policies becoming increasingly important in supplier selection was one of Analysys Mason’s predictions for the business telecoms market at the end of the year, with a warning that operators need to both promote their ESG commitments and successes and also do more to help their business customers achieve their own ESG goals.
That sounds like a business opportunity to us—both to avoid missing out on contracts (as the advisory group notes, many large enterprises but also SMEs already have ESG requirements in their telecom RFPs) but attracting business, too. Telcos doing real ESG stuff, from KPN, carbon neutral since 2011, and Telefónica’s work on reducing e-waste, are getting amazingly useful free PR out of it.
There are other motivations beyond securing your opportunity to bid for work and upping your profile. ESG matters to telcos, as you operate extensive networks and data centres that consume significant amounts of energy; maybe you’d save a bunch of money starting with looking at that.
Organisations in our sector that integrate ESG principles into their strategies may well be more likely to attract socially responsible investors, gain stakeholder trust, and enhance their long-term reputations. Failure to address environmental and social issues may lead to not just reputational damage and regulatory fines, but also reduce your risk profile (how much kit can get washed away in a flash flood—and what are you going to do if your field engineers tell you it’s too hot to work for most of the afternoon fixing cable?).
Last but not least, thinking in active ESG terms could spark some great progress in terms of better running of your operations via energy-efficient technologies and improved overall operational efficiency.
So, like it or not--and yes, even if you think this is all a load of woke you don’t need to care about--ESG requirements matter to mobile network operators for a number of reasons. We think a positive ESG stance needs to be incorporated into your messages to the market. There's no downside to accommodating ESG, only potential upside, and even a regulatory danger of not doing so.
Perhaps history should have the last word here. In the 17th century, French mathematician and philosopher Blaise Pascal (yes, the programming language you used in college was named after him) made a famous argument about belief in God. His so-called ‘Wager’ is now a standard for making a commitment that will only benefit you if it comes off, and won’t hurt you if it doesn’t: “If God exists and I believe in God, I'll go to Heaven, which is infinitely good. If God exists and I don't believe in God, I may go to Hell, which is infinitely bad. If God does not exist, then whether I believe in God or not, whatever I'd gain or lose would be finite.”
In other words: on balance, it’s better to believe in ESG and make it an action list item than not.
We suspect it’s rather worth doing anyway.