Welcome again to the Environmental, Social and Governance (ESG) Wrap, where our team share the latest ESG issues in the media and their implications on investment.

This month the key ESG issues making headlines are:
  • 'Silent boycott': Gen Ys dump scandal-hit brands but stay quiet about it
  • How blockchain is strengthening tuna traceability to combat illegal fishing
  • Plastic and Waste in the Spotlight
  • The Pimlico Plumbers case is a big challenge to Britain’s gig economy

'Silent boycott': Gen Ys dump scandal-hit brands but stay quiet about it  

  • Millennials are more likely to ditch a brand due to a public scandal than any other age group, a brand loyalty survey by digital messaging company LivePerson found.  They are also far less likely to voice feedback to the company about their complaints.  
  • Only one in 10 would pick up the phone and call the company, with most taking the option of a silent protest leaving companies in the dark about their reasons to switch.  
  • Of those who do speak up, social media has made it a lot easier to be vocal and reach a wider demographic.   
  • Overall, young Australians are less loyal to brands with lower tolerance for poor service and quality.  

So, what does that mean?
 
  • Millennials have grown up with heightened expectations of brands but they are time-poor and impatient when it comes to waiting for a company to improve. This lower tolerance means that brands targeted towards young Australians have far less room to make errors.
  • Companies will need to find different methods of reaching out to their younger customer base and getting feedback. Retention and loyalty of customers is a growing struggle in the highly competitive market place.  


 

How blockchain is strengthening tuna traceability to combat illegal fishing

  • The World Wildlife Fund (WWF) in Australia, Fiji and New Zealand, in partnership with US-based tech innovator ConsenSys, tech implementer TraSeable, and tuna fishing and processing company Sea Quest Fiji Ltd, has just launched a pilot project in the Pacific Islands tuna industry that will use blockchain technology to track the journey of tuna from “bait to plate”. 
  • The aim is to help stop illegal, unreported and unregulated fishing and human rights abuses in the tuna industry, including corruption, illegal trafficking and human slavery on tuna fishing boats. It is hoped that the technology will strengthen transparency and enable full traceability, thereby crystallising revenue for all parties in the supply chain.  

So what?
 
  • The global tuna industry has been shrouded with allegations of illegal and environmentally suspicious fishing practices, so blockchain is a much-needed breakthrough. This will hopefully give consumers more information on which to base their purchasing decisions which levels the playing field for all companies in the industry.  
  • Blockchain is being utilised by a huge variety of industries to improve business in many different ways. In particular, we have seen companies using blockchain to track a range of physical products– including cotton, fashion, coffee and organically farmed food products.    

Plastic and Waste in the Spotlight

The background...
  • In 1907 the first modern plastic, bakelite, was invented. In the late 1950s, developments in manufacturing significantly reduced the cost of making plastics, allowing for cheap mass production.
  • Today, plastics have outpaced most other man-made materials and are accumulating in landfills and oceans at a rapid speed.

The scary stats…
  • A 2017 Report revealed that 8,300 million metrics tons (MMT) of virgin plastics have been produced to date. Of this only 9% was recycled, 12% incinerated and 79% sent to landfill or littered in the natural environment.
  • The United Nations Environment Programme (UNEP) found that if this rate continues, then there will be more plastic in the ocean than fish by 2050.

So, what’s happening to try to stop this?
  • ​At the World Economic Forum in Davos in January, 11 companies announced that they will work towards using 100 percent reusable, recyclable or compostable packaging by 2025 or earlier. The companies include well known, international brands: Amcor, Ecover, Evian, L’Oréal, Mars, M&S, PepsiCo, The Coca-Cola Company, Unilever, Walmart, and Werner & Mertz.
  • In December last year, nearly 200 countries signed a U.N. resolution in Nairobi to eliminate plastic pollution in the sea, a move some delegates hoped would pave the way to a legally binding treaty.
  • China has also realised it can no longer afford to import plastics for recycling (having a growing domestic source of its own). In 2017 it decided to ban a range of imported recyclable rubbish as of January 1, 2018. Many countries have felt the full effects of this ban, including Australia which was exporting more than 600,000 tonnes of material to China each year.
  • Meanwhile, the UK Water industry launched a scheme to cut plastic waste in England by creating a network of new water refill stations. It is expected the campaign could cut plastic bottle use by tens of millions each year and save people money. 
  • In some EU countries, there is extended producer responsibility laws which put the responsibility of companies to take back packaging they use for their products, in particular consumer goods. 

So what?
 
  • It is likely that the move to different, more recyclable packaging will lead to increased costs. Certainly, initiatives that extend the responsibility of companies for the packaging they use, such as container deposit legislation and EU-type extended producer responsibility legislation, will increase the costs to either the producer or retailer. It will be interesting to see how this evolves with the increase of online shopping.
  • Producers and retailers have pushed back on these legislations but it is increasingly recognised that there is an external cost associated with packaging and this needs to be internalised into the market.
  • Currently, the economics of recycling is at a disadvantage to the use of virgin material, primarily due to the cost of collection and waste segregation e.g. separating out the different types of plastics. This is especially true in countries such as Australia, where there is limited scale and relatively high wage rates. To facilitate recycling the government will need to step in to change this relative disadvantage, especially as the impact of China's import restrictions are felt in developed markets. If not, waste will end up in landfill and these landfill sites in Australia, near major metropolitan centres, are increasingly difficult to find and to get approval for in the first place.
  • Companies which make the pledge early may be able to use their sustainable manufacturing, waste disposal and recycling as a competitive advantage. It could also be an opportunity for big brands to work with suppliers to investigate more sustainable packaging. Especially with the push for greater transparency in supply chains, companies will be increasingly holding their suppliers to account.

The Pimlico Plumbers case is a big challenge to Britain’s gig economy

  • In February, Britain’s Supreme Court heard a case involving Pimlico Plumbers and one of its former engineers, Gary Smith. The case centred on whether Mr Smith was truly self-employed and merely contracting to Pimlico, or whether his relationship with the firm more closely approximated one of employment.
  • The case is important because more and more Brits are participating in the “gig economy”. This trend is similar in Australia. 
  • Gig-economy workers tend to have short-term contracts or work freelance which means they often miss out on the rights that employees have, such as sick pay and protection against unfair dismissal.
  • Campaigners argue that many gig-economy firms exert considerable control over their staff—forcing them to wear uniforms, controlling their hours and specifying how a task is to be delivered—which means that the staff are really “workers”.
  • In October 2016 a tribunal ruled that Uber drivers were workers, not truly self-employed. Last year a cycle courier working for CitySprint, a delivery firm, won the right to paid holidays. Recently a tax tribunal ruled that a former BBC newsreader had been wrongly classified as self-employed and was thus liable for a large tax bill. And just earlier this week couriers carrying blood for the UK’s NHS won the right to collective bargaining.

So what?
 
  • Legislation is obviously needed to ensure these workers are protected. Yet, by themselves legal changes will not be enough. With work in the gig economy so varied, it is hard to agree on a definition of employment that cannot be gamed by companies. The UK government recently proposed a series of policies including an online tool that will make it easier for Britons to check their employment status, something that already exists in Australia.
  • It is likely that companies will continue to push the boundaries, especially if it affects their bottom line. As a result, investors will increasingly be called upon to hold companies accountable.


Source:  The Economist, February 2018