ESG in 2019 – developments for consumers

Political, regulatory and economic developments in 2019 will impact on how companies committed to responsible business will engage with their consumers.

The consumer should feature more significantly in ESG (environmental, social and governance) due diligence, assessments and strategy. Investors need to go beyond established ESG criteria to do this.

Invest Europe’s ESG Due Diligence Questionnaire – the standard assessment for ESG investor risks –  mentions “consumers” just twice – and only in the context of consumer health and safety.

This is why GK’s due diligence looks at ESG in a wider context, assessing issues of quality (of product and service), affordability and transparency.

Several emerging issues in  2018 will gain momentum  in the year ahead – investors who do not pay due attention may leave themselves exposed to regulatory and reputational risks.

The first is  the cross-sector agenda for ensuring  that companies (and public sector organisations) correctly identify and handle vulnerable consumers.

Companies need to recognise that vulnerability is no longer understood by NGOs and regulators (such as the FCA)  in terms of certain characteristics of the consumers (old age, mental health issues, etc) but of their situation – which may include extremely stressful circumstances, like redundancy.

Standard consumer information, on age, gender or location,  for example, won’t provide sufficient information to identify vulnerable consumers.

This is why the sort of increasingly tailored approaches adopted by many financial services companies may need to spread elsewhere.

The second, connected development is the growth of high levels of consumer indebtedness. Indebtedness may get worse if, for example, interest rate rises lead to significant increases in major monthly payments for mortgages and car finance.

With this in mind, companies should continue to focus on compliance – which should be regarded as a given – around consumer regulation but should ask themselves (and indeed their customers) whether the way they communicate with consumers, and how they structure their offer, helps consumers understand and manage their finances more easily or makes it more difficult.

Do consumers really understand – and can they readily understand (without looking at the small print) – the obligations entailed with free trials or discounted introductory periods?

This leads into the third development – heightened regulator interest in what is done to appeal to new customers, sometimes at the alleged expense of existing, particularly loyal customers.

The Competition and Markets Authority (CMA) recently announced strong recommendations to government and regulators following the Citizens Advice super-complaint to them, which claimed that loyal consumers pay higher rates than those offered to tempt new customers in several major markets. Some of the main proposed changes are:

  • Clamping down on harmful practices that stop people getting better deals, beginning with a consumer law enforcement investigation in the anti-virus software sector.
  • Setting out clearly the principles businesses across all markets should follow, such as people being able to leave a contract as easily as they enter it.
  • Publicly holding to account firms that charge existing customers much more [than new customers]. Regulators should publish the size of the loyalty penalty in key markets and for each supplier on a yearly basis.
  • Targeted price caps to protect the people worst hit by the loyalty penalty, such as the vulnerable, where needed.

How new and existing customers are treated will become a much bigger part of the ESG agenda in 2019. Managing the risks on these ESG factors is critical, but opportunities exist for those businesses which demonstrate market leadership as consumer champions.

GK Strategy helps investors and companies understand how to take systematic approaches to responsible customer engagement.

For more information on how GK approaches ESG in its due diligence and advisory services, please take a look at our ESG services page.

See more articles by Martin Summers