Some time ago, Elon Musk angered ESG, saying that it is "the incarnation of the devil", which caused a shock in the industry.
As a global leader in new energy vehicles,Tesla 's ESG score is not as high as that of an oil company.Musk's move resonated with a large number of netizens.
Is ESG going to collapse?
In fact, judging from Tesla's official serious attitude, it is not to completely oppose ESG.
Behind the controversy is a road fight.Regarding the fundamental question of "What is the purpose of ESG investing?", there are two paths to choose:
First, ESG integration helps investors avoid various non-traditional risks and make long-term stable profits.
Second, impact investing, that is, investing in projects that improve the environment or society, bringing a positive social impact while profiting from it.
Many people have doubts about ESG. The fundamental reason is that they do not believe in the second way, that is, they do not believe that investment can do good things and achieve excess returns.Therefore, this second path is relatively unattractive to investors.
But clearly, Musk belongs to the second path.
When the time comes to 2022, a large number of ESG rating andinvestment institutionsare also working hard to switch to the second path.The reason is not difficult to understand: because the various climate agencies under the United Nations are constantly warning: we are too late.
In response to this pressure, ESG is also shifting from “helping people avoid risks” to “urging people to act as soon as possible”.
In 2022, judging from the trend forecasts of authoritative ESG assessment agencies such asMSCIand S&P, ESG stakeholders will imposestricter requirementson listed companies .
What are the specific requirements?Three of the more important are:
1. Focus on the actions and results of transformation
2. Pay attention to the risks and responsibilities of the supply chain
3. Pay attention to the amplifying effect of digitalization on ESG results
We will take Lenovo Group (00992.HK, LNVGY.US) as an example.As an ESG "leader" level enterprise, Lenovo's ESG work is ahead of the market.Let's take a look at how Lenovo has put the new ESG trends into action, and what results have been achieved.
Figure: Lenovo Group's MSCI ESG Ratings
01 Focus on the actions and results of transformation
ESG has always attached great importance to companies' disclosure of their low-carbon transformation plans.But by 2022, it is no longer enough to "disclose" these plans.
In 2022, the pressure from investment institutions, regulators and other stakeholders will further increase, urging companies to start implementing low-carbon transformation and show "action and results".
Just as important financial institutions such as Standard & Poor's andDeutsche Bankpointed out: By 2022, the oath of goals and institutional preparations have been relatively sufficient, and it is time to act to achieve the goals.
In turn, companies that have disclosed their plans but have been slow to move forward and are suspected of "greenwashing" will be particularly pressured.
According to the goal established by the United Nations Climate Change Conference (COP), "strive to control the climate temperature increase within 1.5°C by 2050", many companies have formulated their own transformation plans.
Take Lenovo as an example. Lenovo is one of the first Chinese companies to participate in the demonstration of the "net zero emission standard for enterprises".The standard was initiated by the Science-based Carbon Targets Initiative (SBTi) to ensure that thecarbon neutralitytargets established by companies are objective and enforceable, and to provide companies with advice and technical support for carbon reduction paths.
Figure: Science-based Carbon Targets Initiative (SBTi) logo
As a highly authoritative international organization, SBTi is a powerful verification of the scientificity of the low-carbon transformation of enterprises.
In the more than 10 years before obtaining the SBTi certification, Lenovo has made great efforts in low-carbon transformation.
As early as 2006, Lenovo began to collect, measure and report the greenhouse gas emissions of each workplace.In fiscal year 2009/10, Lenovo set emission reduction targets for the next 10 years.
The initial target was not aggressive, with an expected 20% reduction in greenhouse gas emissions within 10 years.But after 10 years, all Lenovo Group businesses have reduced greenhouse gas emissions by 92% (Scope 1+2).
Such a significant reduction in emission reductions are behind specific technological innovations.
For example, Lenovo's Hefei Lianbao factory, the world's largest personal computer production base, produces more than 40 million notebook computers of different models a year, and handles more than 8,000 orders per day on average, more than 80% of which are personalized orders of less than 5 units. The production process is highly complex and flexible.
Lenovo applies advanced production scheduling technology (LAPS) to effectively reduce idle production lines, improve efficiency, reduce energy consumption, and reduce more than 2,000 tons of carbon dioxide every year, equivalent to planting 110,000 trees.
Coupled with Lenovo's proud new low-temperature solder paste (LTS) process, it can reduce carbon emissions by at least 1,000 tons per year.
The ESG report of Lenovo Group for fiscal year 2020/2021 shows the society that the low-level emission of30 grams of carbon dioxide (equivalent to less than 5 grams per 10,000yuan ) per 10,000US dollarsof high-tech manufacturing income is completely achievable , and in the future, with the support of SBTi and other institutions, emissions will be further reduced.
As a pioneer in the green economy, Lenovo has begun to receive the results of the transformation, especially the competitive advantage that the transformation has brought to the company's products.
Low production energy consumption, low carbon footprint, and the use of recyclablematerialshave brought some price advantages to the product and made it better suited to environmental regulations around the world.
The low energy consumption and durability of the product also effectively reduce the cost of using the product for users.
Figure: More than 90% of Lenovo's PC, workstation, server, and monitor products have obtained the "Energy Star" energy-saving certification.
In addition, the products are more favored by consumers who prefer environmental protection due to their rich green added value.
For institutional users, these advantages are especially attractive.As Lenovo continues to expand its digital business to B, Lenovo continues to reap the benefits of green transformation.
In the newly ended 2021/2022 financial year, the Group's emerging IT solution services business grew by 30% year-on-year.The digital infrastructure and transformation services provided by Lenovo for enterprise customers naturally contain Lenovo's green genes: products are more energy-efficient, durable, and come with a recycling solution at the end of the product life cycle.
In the national "East Number and West Calculation" project, data center facilities have a core indicator, that is, PUE (Power Usage Effectiveness, that is, the ratio of "total data center energy consumption" to "IT equipment energy consumption") should be below 1.2—— The part more than 1 is mainly energy consumption for cooling the equipment.
Lenovo's "Poseidon" warm water and water-cooled server can reduce the PUE to below 1.1.This made Lenovo a strong bidder for the construction of national digital infrastructure, and the product was selected into the "National Green Data Center Advanced Applicable Technology Product List (2020)" by the Ministry of Industry and Information Technology.
As the Lenovo case shows, the results of green transformation can be tangible improvements in cost, efficiency, and market performance.
After 2022, enterprises need to think about the specific actions of green transformation: what kind of technological investment is required for the transformation, and what kind of institutional reform is required?What are the phased results clearly pursued by these technical and management investments?
Well-planned transformation projects will play an increasingly important role in ESG investment and financing.
Transformation is not just a cognitive issue, but a manager's ability issue.On the one hand, managers can learn from existing cases, and on the other hand, they can seek support from solution providers and professional institutions.
Picture: The Beijing Meteorological Bureau has deployed a new Lenovo high-performance computing system, which has increased the computing power by 20 times, while reducing the energy consumption by 42% compared with the past, and fulfilling the common concept of "Green Olympics" with practical actions.
02 Focus on supply chain risks and responsibilities
From the beginning of 2021 to the present, the external environment for enterprise development is undergoing complex and profound changes.The new crown epidemic, climate change, and geopolitical conflicts have led to an increase in the fragility of the industrial chain, and the hard constraints of resources, environment, and technology faced by listed companies in the development of the company continue to increase.
Under the market conditions of high uncertainty, ESG pays more and more attention to two major issues related to the supply chain:
The first is risk prevention.Can listed companies guard against risks transmitted from the supply chain.
The second is transfer responsibility.Whether listed companies can pass regulatory requirements to upstream and downstream companies through the supply chain to improve their environmental and social performance.
In addition to social concerns about supply chain issues, regulators have also sent clear signals.
In February, a proposal for the EU's Due Diligence Act was released, which is expected to be implemented in 2024; while Germany's Supply Chain Due Diligence Act will be implemented from January 1, 2023.According to the previous law, the EU's legislation on market governance, the US and China's legislation usually follow within three to five years.
Generally speaking, the new regulations on due diligence will stipulate various principles of due diligence in the supply chain; require large enterprises to be responsible for the compliance of their supply chains and prevent environmental and social responsibility risks in the supply chain.
In China, although there is no systematic legal regulation on supply chain responsibility, it still has a significant impact on the interests of enterprises.
Photo: CCTV's 315 Gala exposed "sauerkraut", causing huge losses to the brand image of downstream instant noodle companies
As a high-tech manufacturing enterprise, Lenovo's supply chain is highly complex, and it ranks 9th among the "Top 25 Global Supply Chain Enterprises" ranked by Gartner. Its supply chain management is also of reference.
In terms of risk prevention, in addition to regular supply chain processes, Lenovo also uses third-party risk assessments, such as requiring productive suppliers to obtain VAP audits from the Responsible Business Alliance (RBA) to demonstrate their ESG leadership.
The audit items include compliance audits of multiple indicators under the five major items of labor, health and safety, environmental protection, business ethics, and management systems.
Figure: Statistics on the median score of Lenovo's supplier VAP audit over the years.Lenovo is committed to continuously improving the responsibility performance of suppliers and ODMs (Original Design Manufacturers)
For non-compliant suppliers, Lenovo will require corrections or stop cooperation as appropriate.
If the work of "preventing risks" is to ensure that suppliers are legally compliant and keep the bottom line, then the work of "transmitting responsibility" requires companies in the supply chain to play an active role in the environmental and social fields.
A hotly debated topic in this regard is "Scope 3," or carbon emissions from public companies in their supply chains.
In Lenovo's roadmap for future carbon reduction, three of the four key tasks fall into scope 3.
The second column in the figure is for the downstream supply chain, which is the carbon emissions generated by downstream companies using Lenovo products.
The third column is for upstream suppliers.Lenovo is committed to promoting low-carbon transition to suppliers, urging suppliers to join the Science-Based Carbon Targets Initiative (SBTi) and make a commitment to understand their transition difficulties and help them.
Lenovo plans to reduce greenhouse gas emissions by 1 million tons from its global supply chain by fiscal year 2025/26.That's roughly equivalent to subtracting five times the current Lenovo's own emissions.
Supply chain is also a hot topic of domestic legislation.During the National People's Congress and the National People's Congress in March this year, deputies to the National People's Congress and members of the Chinese People's Political Consultative Conference mentioned the issue of supply chain development many times in their proposals, and there were also plans for green transformation of the supply chain.
It is expected that regulators, investors and consumers will put forward higher requirements for ESG assessment of corporate supply chains.
03 Focus on the amplifying effect of digitalization on ESG results
The digital economy is booming.Many large IT companies have achieved excellent performance due to the provision ofbig dataandcloud computinginfrastructure in the tide of the digital economy.
The long-term growth capabilities of such companies are of course very good, and their ESG ratings are often not bad.But that's not enough.
For ESG trends after 2022, such companies will receive stricter attention from stakeholders.
MSCI, the leading ESG rating agency, calls this trend a focus on the "new Amazon effect."
The traditional "Amazon effect" means that when amazon.com replaces a large number of offline economies, the online transaction rules it sets will affect thousands of sellers and buyers.
And MSCI's so-called "new Amazon effect" pushes this platform's influence to the ESG field.In the digital economy environment, the products and services of these large B2B companies will affect the operation of almost the entire market.The ESG management systems within these companies will affect the behavior of the entire market.
These companies with the "new Amazon effect" include: the most upstream semiconductor companies, such as Intel, Qualcomm; digital equipment and service providers, such as Cisco, Lenovo, HP; cloud service providers, such as Amazon, Google,Alibaba, etc.
In the future, stakeholders will put forward higher requirements for these enterprises.This means a greater responsibility: to ensure that good ESG concepts are delivered in their digital products and services to support the market for good.
In the past two years, Lenovo Group's digital service business has achieved historic results, and its positive "Amazon effect" has begun to emerge.
Figure: Lenovo's intelligent-related new businesses SSG (Solution Services Business Group) and ISG (Infrastructure Solutions Business Group) achieved breakthroughs in fiscal year 2021/2022
Lenovo's server equipment and intelligent solutions have supported many energy andheavy industrycompanies on their way to digital transformation.For example, in the digital upgrade of Asia Cement, Lenovo's solution helped optimize the resource allocation system of the production line.This has increased Asia Cement's resource utilization rate by 45%, resulting in significant savings in production costs.
In addition to the role of energy conservation and emission reduction, Lenovo's digital solutions bring improvements to customers across dozens of ESG issues, such as improving access to education and medical care, ensuring data security, improving labor relations, and more.
In the future, digitalization will become a new lever for ESG performance of large B2B companies.Whether these companies have advantages or disadvantages in environmental and social responsibility, they will be leveraged.
Stakeholders naturally pay more attention to the good side of this leverage, and urge digital B2B enterprises to play a role of good.
04 Summary
In 2021, ESG will be significantly mainstreamed in the global investment and regulatory fields, further establishing ESG system rules and bottom lines.
Henceforth, ESG stakeholders will pay more attention to positive actions and influence, and focus on the amplification effect of ESG influence in the supply chain and digital economy.
Enterprises with greater scale and influence will assume greater ESG responsibilities in the future.
As MSCI pointed out in its 2022 ESG Trends to Watch report, future investors will pay more and more attention to the actual effects of their investment projects.
ESG investing activity will increasingly organically revolve around these truly green, sustainable projects, creating a virtuous circle between impact, ESG credit and ESG investing.
With a long-term strategic vision, Lenovo stands at the forefront of the two eras of digital transformation and green transformation.
While consolidating its own sustainable development advantages, the Group also conveys the courage and support to the market through its industrial chain and digital services.Lenovo explained what role ESG "leaders" will play in the future global industrial development and transformation.
The global task of tackling climate change and achieving zero-carbon sustainable development is extremely arduous.No matter in terms of theglobal marketor ESG investment, there is an urgent need for outstanding companies to achieve green transformation with higher quality and bring people the courage to act.
With forward-looking strategic vision and management wisdom, Lenovo has opened up the future direction of ESG governance practice by taking into account both development and responsibility.Big companies must have great responsibilities. On the road to sustainable development globally, ESG will be an essential quality for excellent companies.
(Responsible editor: RobotRF13015)
