To many in the investment community, 2021 will be remembered as the year
institutional investors threw their weight behind environmental, social and
governance (ESG) principles, recognizing the importance of these factors in
driving long-term shareholder value. Investors backed a record number of
proposals on climate change, diversity and other environmental and social issues
during this year’s proxy voting
season. A
total of 34 resolutions won support from a majority of investors, compared to 21
a year earlier, and several passed with a thunderous 80 percent margin.
US companies have heard the message and have been responding to the growing
demand for ESG information. Today, 90 percent of S&P 500 companies have
published an ESG report, up from just 20 percent a decade ago. Companies are
committing more resources to keep pace with the demand — not only from investors
but ratings firms, standards-setters and independent advisers, as well.
Furthermore, a recent
paper by the
Federal Reserve Bank of New York laying out a framework for climate stress
tests seems likely to add momentum to climate risk reporting by banks.
Publishing an annual sustainability report can be a monumental task. One Chief
Sustainability Officer (CSO) interviewed for a recent Deloitte
study
said their report required the help of 150 subject-matter specialists across the
company. In addition, the CSO said they handled 55 inquiries last year from
independent ESG assessment firms to either complete a survey or verify
information, an experience shared by many US companies. In a recent US Chamber
of Commerce
survey,
73 percent of US companies reported a rise in the time and costs they incurred
related to addressing ESG demands over the past five years.
Thanks to efforts by CSOs and their teams, today we have more metrics, more data
and more reporting on ESG than ever before. But it’s fair to ask whether we are
any closer to a sustainable future. Disclosure and data certainly are important,
but they are not sufficient to create a more equitable and sustainable world.
Companies that take a narrow or compliance-focused approach to ESG are missing
the forest for the trees.
DEI and sustainability: The ROI of inclusive corporate cultures
Join us as leaders from the Accomplis Collective, Bard, Beneficial State Foundation, ReEngineering HR and REI share best practices for cultivating a culture of belonging and insights into how inclusive leadership can lead to more effective and equitable sustainability outcomes — Wednesday, Oct. 16, at SB'24 San Diego.
Instead of thinking of managing ESG in vertical silos (E, S or G), leaders
should shift to a multidimensional view to examine the risks and opportunities
present in all three areas and focus on three pillars: protecting the
environment, promoting equity, and fostering trust and stability. They
can then match these objectives across the broader jobs to be done — from
redesigning work, reducing inequality and transforming education to improving
health and wellness and developing alternative energy sources.
Financial institutions in particular have a key role to play given their vital
place in the economy; and they should think strategically about how they can
respond to ESG issues in a manner that creates profit for their shareholders and
addresses urgent societal needs. In this way, financial services companies can
strive for a “higher bottom line,” putting sustainability concerns on an equal
footing with more traditional growth and profit goals, a position we described
in a
report
earlier this year.
For example, addressing opportunities in next-gen
mobility
through electric and shared or autonomous vehicles can not only help address the
issue of climate change, but also affect society more broadly by helping certain
disadvantaged groups — such as those with mobility challenges or those who lack
the financing to own their own vehicle, to experience greater opportunities to
travel for work, shopping or pleasure. The financial services industry could
help fund the technological solutions to address such challenges.
Similarly, financial leaders can use this same approach to position their firms
to take a stronger stand on reducing inequality. Real estate property
developers, owners, and financiers can think about developing low-income housing
with sufficient public green
space;
bankers and wealth management firms can develop mobile-first products that bring
more un- or underfinanced individuals into the system; and all types of
organizations can take steps to ensure greater diversity in leadership,
suppliers, and third-party relationships.
There is plenty of scope for financial services organizations to use technology
and new partnerships to address major societal issues, make new markets and
generate profit in collaboration with multiple stakeholder communities while
proactively rebuilding trust in institutions.
Indeed, we’re already starting to see innovative examples in the financial
services sector. In June, Citi
announced
new investments made by its $200 million Impact Fund. They included
Greenwood — a Black-founded, tech-enabled,
financial banking platform; and MoCaFi — a Black-owned
fintech company that provides mobile banking, credit-building and
wealth-empowerment tools to underserved communities.
The financial services industry is working hard to assess, measure and report on
ESG goals. But the demands and expectations being placed on the industry –
indeed on all industries – suggest that doing nothing is not a winning strategy.
Neither is limiting efforts to measuring and reporting. The problems to be solve
demand a more active posture, one that offers firms the opportunity both to
share progress and to lead in the effort to create a more human-centric economy
and society.
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Sustainable Brands Staff
Published Nov 18, 2021 1pm EST / 10am PST / 6pm GMT / 7pm CET