In this second episode of the five-part special, Tom Fox discusses ESG intelligence with Chris Mason. They talk about the importance of ESG profiles, meeting regulatory requirements, and what ESG as a whole can do for businesses.
Chris Mason is with Infortal Worldwide, a global risk firm that provides due diligence services to support key investment decision-making. Infortal Worldwide supports a lot of private equity investment, mergers, and acquisitions, as well as any type of risk scenario a business may face.
” A company’s ESG profile can significantly impact both reputation and valuation. ” – Chris Mason
Welcome to the show notes for Season One of Riskology by Infortal™.
Riskology is a podcast that combines the worlds of geopolitics and intelligence with that of business. Geopolitical risk threatens global trade, supply chain integrity, and corporate reputation unlike anything seen since World War Two. Riskology by Infortal™ is meant to inform, entertain, and cut through the noise of crisis so business professionals can have a clear understanding of their place in the constantly changing global economy.
The following is a collected transcript of our podcast episodes from our launch through September 2023. In this season you will:
Please note: These transcripts are noted as spoken, and are dated to early Fall 2023. As such, this season does not include up-to-date information related to unfolding crises such as the October 7, 2023 attack in Israel, radical electoral outcomes in Europe and Argentina, or the looming war between Venezuela and Guyana.
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Infortal on Risk Intelligence Part 2: ESG Intelligence with Chris Mason
Make sure that any disclosures that you're making related to environmental issues, social issues or you know any of the ESG type issues is you really gotta be honest about what you're projecting and what you're putting out there because that's where we've seen in the United States, people have run into trouble is where they've made that declarations in terms of environmental profiles that didn't actually end up being true.
Companies operating in today’s global Economy's really need to get an understanding of the International geopolitical risk landscape. At Infortal Worldwide, we work with our clients on solving risk Before it starts. Welcome to the Riskology podcast. This is a 5-part series on geopolitical risk intelligence where we're looking at managing business risk globally and really understanding the geopolitical risk landscape.
Tom: Hello everyone, this is Tom Fox back for another episode in our five-part series sponsored by Infortal Worldwide our geopolitical risk intelligence, today I'm thrilled to welcome back Chris Mason who's gonna visit with us about ESG intelligence! Chris, first of all, welcome back.
Chris: Great to be here again, Tom, look forward to the conversation again today.
Tom: Chris, one of the most ubiquitous business terms over the past several years has been ESG, and there's a wide variety of opinions on ESG, and the thing that I really wanted to focus in with you is how can companies understand? Not simply their customers or other stakeholders, third parties around the issue, but themselves. So, could I maybe start by asking you what is an ESG profile and why is it so important that a company engage in that to start with in this area?
Chris: As I'm sure you're aware, that the ESG landscape is becoming more and more prevalent in conversations and throughout the headlines in terms of where the regulatory landscape is gonna go. Recently, it's been politicized as well. Anytime you've got a really complex set of regulations that have the potential to impact the energy industry specifically, you're going to have a lot of arguments forming on both sides of the equation, and so at the moment it's really a crystal ball situation. No one truly knows what the ESG landscape is going to look like longer term, but I think what's important, in circling back to your question, is for businesses to start to understand what their own ESG profile looks like. Because as the regulations come into play as the regulatory landscape matures, it's gonna be important to really understand where your business sits within the ESG spectrum. And to truly understand that you've got to really understand your exposure to a lot of environmental based situations and circumstances that you may not have had experienced with in the past. ESG of course you've got the E for environmental, S for social issues, G for governance, and so you've really got to take a holistic view across that basket of issues to understand what your business profile looks like. Now, where this is gonna be important is within the middle market and for smaller companies because they haven’t historically looked as closely at the ESG regulations, or they haven't been burdened before with regulatory disclosure requirements. But as this grows, as more of the bigger players are going to be required to have the ESG disclosures as part of their operating profile, They're going to request similar types of disclosures from smaller companies. And so, if you're looking to partner with the bigger players? You really need to understand what your ESG profile looks like so that you can then provide that information to potential partners. Another situation where ESG is going to become more and more important is in the M&A. The mergers and acquisition space. One of the things that comes up pretty frequently in a lot of the M&A conversations, webinars, events that they're taking place is the fact that there's a lot of dry powder right now on the sidelines for M&A because the economy is in the state that we are in today. People are really looking closely at valuations and trying to get a handle on where business valuations are going. At a certain point a lot of that dry powder is going to be deployed and a lot of funds, a lot of family’s funds, private equity funds and even some of the larger players are going to be looking to deploy capital into businesses. So, what you need to ask yourself is if I'm going to enter into that space and I'm looking for investment, or if I'm looking for a buyout, do any of these private equity funds, any of these investor’s care about what my ESG profile looks like? And if so, do I have the ability to present that to those investors. And am I happy with what I'm seeing? It's extremely important that businesses start now to think about what that profile looks like, because to be competitive in that M&A space. It may be extremely relevant.
Tom: Chris, let me take your last point and flip It. In the following manner you talked about a company having an ESG profile. Now, assume a client, or customer, has come to you and say we're looking to expand, to acquire In the ESG space, we're excited about this. How would you counsel it to think through looking at an ESG profile and perhaps even testing some of that profile with the tactics and strategies of Infortal worldwide?
Chris: It's a very complex situation when you begin to think through ESG regulation and ESG profiles, but really at the end of the day you've got to start with assessing your own company set of values as they relate to ESG, and what you're really looking for your profile to look like. Once you establish that through examining what your exposure is within each of the different categories, you can then build what you would expect to find in future partners or into companies that you're looking to invest in. And what we would do as a company, Infortal, is we would help guide you through that process of examining your exposure to potential ESG issues. And so that can look a lot of different ways depending on the industry that you're in, depending on the jurisdictions that you're involved with, and particularly depending how complex your supply chain is.
Tom: Chris, one of the things that, at least in my opinion, makes an ESG analysis a little different is the regulatory framework. Now the United States that regulatory framework saying well maybe lacking, but in other jurisdictions it's very robust. And I would point you to the EU or non-regulatory bodies such as ISFR or other SASB who are putting together some standards. How do you help a client understand or even navigate the various regulations or the standards from some of these significantly important non regulatory bodies?
Chris: It is extremely complex at the moment in terms of looking across jurisdictions and you're absolutely right, especially with Europe, certain jurisdictions are much further ahead in terms of developing regulations. And so, what we do is we work with clients who truly understand the exposure to those different regulatory bodies. At the same time, you've also gotta be looking at the horizon to understand the types of regulations that may be coming down the pipeline both domestically and internationally. And that type of analysis is really going to vary depending on the industry that you’re in and how much International exposure that you've got. But one of the key fundamental elements I think to really think about here in the United States is make sure that any disclosures that you're making related to environmental issues, social issues or you know any of the ESG type issues is you really gotta be honest about what you're projecting and what you're putting out there, because that's where we've seen in the United States people have run into trouble is where they've made declarations in terms of environmental profiles that didn't actually end up being true.
Tom: Chris, I was not simply intrigued, but actually quite heartened when you opened your remarks on this podcast talking about taking a holistic approach that a company should take a holistic approach to begin to look at their own ESG profile, and I say that because I think ESG itself the power of it Is it's a business process that it allows either a person or a group, or perhaps a board to look at a company literally across silos or as you would say holistically It strikes mee that assessing your ESG profile is an incredibly important business exercise. Now, whether or not you intend to go out and be an inquirer whether or not you intend to acquire, just having that information yourself actually puts you in a business advantage. And if you've done a profile, you're perhaps able to move more nimbly or actually, and I would even use the following example: the last time I sold a house, our realtor said, “I want a pre-sale inspection report.” And I want to know what's wrong with your house. And I want to know how you're going to fix it. Because if we get an inspection report after we got a contract, it could lead to a whole series of issues, and so it strikes me as your remarks about an ESG profile that's just a good business practice at this point.
Chris: That's absolutely right! And something you mentioned, there its extremely important in terms of the home report, right? You really want to make an assessment of where you stand today. What does your business look like? What does your ESG profile look like today? And that's a dynamic situation. That's not static, so even if you pull that report, similar to how you get your housing report, if you don't like what you see there you can make changes; you absolutely have choices, and you can make decisions where you can change that profile. But it all starts with getting that first snapshot of where you stand today and then setting, as a company, what you want your goals to be and where you want that profile to go moving forward. So, that's where we come in and we really help companies set what they want their profile to look like, and then make that initial assessment in terms of where they want to go. And again, it really is going to be one of those issues, ESG has about a set of issues, It's going to be one of those things that's much more closely tied to company valuation than was in the past. So, they say It's going to be part of a bank, or it should be part of prudent business practices.
Tom: Well, I can't think of a better way to end this podcast. Chris, I hope our listeners will join us for our episode 3 where we take on a subject near and dear to my heart, corruption intelligence. Chris, before we leave, I wanted to ask you if our listeners wanted any more information on either topics we've touched on today. Where would be the best place for them to go?
Chris: Best place to go would be our website Tom, so that's infortal.com. Really appreciate it. See you again.
Tom: Thanks so much. I look forward to continuing this conversation.