Telecom Firms And "Social" - Which Is One Of The Three Elements Of ESG

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Telecom companies can find additional opportunities to increase revenue and enhance their contribution to society through reinvigorating three social ESG factors: offering a great place to work, promoting digital inclusion, and growing cybersecurity services. ESG accountability and more robust methodologies can help firms as well

Creating a great workplace is imperative for telecom companies to attract and retain employees, as well as improve labour productivity Source:
Creating a great workplace is imperative for telecom companies to attract and retain employees, as well as improve labour productivity

 

With energy prices on the rise, more telecom operators are improving energy preservation methods whilst working towards their net-zero emissions targets. This is contributing to the increased attention that environmental, social and governance (ESG) is receiving today. 

In this article, we argue that for the telecom sector, increasing workplace attractiveness, enhancing digital inclusion, and promoting cybersecurity can help companies seize unique revenue opportunities while improving social performance. Although some companies are already doing this, we see room for improvement as well as better alignment. ESG analysis typically looks at both risks and opportunities, while we specifically identify three social factors that can help telecom companies take advantage of opportunities. We would like to propose a new narrative that reinforces the positive contribution of telecom companies to society through uncovering the importance of social ESG factors, separate from environmental or governance ESG factors.

Identifying material ESG factors to mitigate risks and realise opportunities

Here we look at how two expert agencies in the field of ESG – S&P and MSCI – evaluate ESG factors in the telecom sector. S&P suggests in its ESG Risk Atlas that telecom companies are subject to social risks and environmental risks in an equal manner. The environmental factors it deems relevant are energy consumption, emissions, end-of-life implications of equipment, water consumption of data centres, and exposure to extreme weather conditions. The social factors it considers are data privacy and network stability, possible excessive social media use (and misinformation), human capital management, issues arising out of the ethnically diverse customer base, safety management risks, as well as corporate citizenship. Given S&P’s background as a firm providing credit ratings, its focus is very much on the risks. It evaluates important governance risks elsewhere in its credit risk framework.

S&P sector risk atlas

Source: S&P Global Ratings
Source: S&P Global Ratings

 

MSCI evaluates both a company’s ESG risks and opportunities through its ESG Industry Materiality Map. The drivers of ESG in the telecom sector are governance (40%), carbon emissions (5%), privacy & data security (26%), labour management (24%) as well as access to communications (5%). For example, the carbon emissions category evaluates a telecom company’s carbon intensity, as well as its efforts to manage climate-related risks and opportunities. MSCI does include access to communications as a social opportunity factor in its ESG rating metrics, defining it as “the extent to which companies are taking advantage of opportunities for growth in historically underserved markets,” in both developing and developed countries. Yet, this factor only accounts for 5% of the total rating.

Distribution of material ESG factors for the wireless telecommunications sector - MSCI

Source: MSCI
Source: MSCI

 

Below are more detailed explanations of some selected traditional social ESG factors of telecom operators:

  • Data privacy: As telecom companies are responsible for disseminating information, failing to protect basic data privacy will lower customer trust and raise reputation and regulatory risks. That said, better data privacy policies and actions can protect customers and therefore businesses.
  • Network stability and safety: S&P also points out that factors such as personnel and infrastructure maintenance can determine the stability and safety of a telecom network. Unreliable networks may lead customers to switch to other companies; incidents happening at towers and data centres can reduce employee confidence and increase reputation risks.
  • Human capital management: Telecom operators, which are often large companies with unionised workers and disadvantaged groups (such as minorities or people with disabilities), need to engage in a proper way with their employees. They should offer appropriate benefits to prevent good employees from leaving, but also avoid labour-related conflicts. Strikes are obviously a serious destruction of value, but poor human capital management could also lead to lower morale or worse.

Three social factors that can bring additional revenue to telecom companies

Telecom companies today are consciously addressing the abovementioned risks, which will help improve their creditworthiness. While many telecom companies are already rolling out initiatives to seize opportunities, we argue that the following three factors – workplace attractiveness, digital inclusion, and cybersecurity services – need more attention.

Being a great place to work

Creating a great workplace is imperative for companies to attract and retain employees, as well as improve labour productivity. This includes promoting diversity, employee engagement, and a sense of employee belongingness. While the first two factors have been regularly integrated into company ESG practices and ESG ratings, the last –belongingness – is not implemented as often.  

  • Diversity

Diversity is an essential means to increase the confidence of employees and customers. Consultancies, companies, and rating agencies have emphasised its importance: for instance, Deloitte wrote in an article that more diverse workforces can play a multiplier effect on a company’s ESG performance and we fully subscribe to this idea. Diversity has also become an important focus for companies. ESG rating agencies are also taking it into account, for example, Sustainalytics scores on diversity programmes, gender pay disclosure and gender pay equality programmes.

  • Employee engagement

A high level of employee engagement helps enhance labour enthusiasm as well as retention rates. It is often measured by employee Net Promoter Score (eNPS) – and several companies in the technology, media and telecom sector have used eNPS as one of the KPIs when issuing their sustainability-linked loans.

  • Belongingness

Nurturing a sense of belongingness in the workplace is highly intertwined with diversity and engagement, but its importance to a company’s culture and prosperity means that it deserves to be treated separately and more seriously. In its ESG efforts, technology firm Wolters Kluwer reports a measure for “belonging”. It defines this measure as “the extent to which employees believe they can bring their authentic selves to work and be accepted for who they are”. We think that a healthy score on such a factor could improve productivity, and improve innovation because people feel free to talk.

Promoting employee belongingness can also entail setting up ventures that have their own purpose and organisational culture – for telecom companies, such ventures could be around cybersecurity. This is because employees may prefer to work for a fast-growing cybersecurity company over a larger corporate. By setting up smaller ventures, large corporates can attract and retain talent, as long as there is a fit for the wider corporate organisation. Furthermore, employees often choose to work for a firm with a clear purpose in society. Developing a relevant purpose should therefore be included in the design of a great place to work.

Because of its uniqueness, a sense of belongingness should be featured in ESG ratings, which could then encourage more companies to consider making efforts to improve the issue.

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Telecom sector ESG

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This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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