E, S, don’t forget G
ESG investing is here to stay. Green or sustainable bonds are now mainstream. Amazon and Kellogg are just two of the most recent global companies to offer them.
Investors are scrutinising company annual reports to understand how they are meeting ESG standards. Which ESG standards, no one actually knows – there are well over 300 different sets of criteria for measuring ESG credentials. The CFA recently published its draft of ESG disclosure standards – adding yet more to the mix.
The ability to communicate your environmental and social narrative to the outside world is essential. As the financial markets have shown – ‘sustainable’, ‘climate’ and ‘green’ bonds, are all the rage. But that’s only part of the picture. What about governance bonds, or diversity debt? They don’t exist.
Don’t be quick to forget the G of ESG. Especially now lockdown restrictions are lifting, the commute has restarted and there is a focus on the rise of emissions caused by people travelling to and from work.
According to Investment Week, over 55% of high net worth individuals placed climate change risk as a top three ESG issue. Only 9% placed diversity in the same bracket and 12% considered executive pay a top ESG priority.
Attenborough and Thunberg have been advocates of climate change, sustainability and the environment, burning up column inches, dominating the debate. But the media isn’t to blame for these inherent investment biases.
Think back further to the ‘Black Lives Matter’ protests and subsequent cultural change played out through social media feeds and news programmes. A diversity story that received global coverage, with 67% of Americans expressing some form of support for the movement. Yet diversity remains difficult to navigate for the uninitiated. Offence can easily, and rightfully, be caused with the wrong phrase or outlook.
As they used to say in the 19th Century: ‘Human nature is above all things lazy’. It is far easier to talk about the environment, reducing carbon emissions and building a sustainable future than it is to talk about more socially challenging topics of gender politics, racial divides and age prejudices.
Every investor knows the importance of ESG, but they need to remember all three aspects are as important as the other in creating the future investment approach.
As a business, commit and communicate action across the full ESG spectrum to ensure your company delivers real, sustained change.