Corporate Group Instinctif Partners

October 6, 2020

ESG – A Social Imperative in a Post-Covid World

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Investors and corporates have a huge opportunity to use their position to drive real change on ESG. In particular, asset managers are in a privileged position as the owners of large chunks of leading businesses, holding board positions and thus equipped to take action on a range of ESG issues across many sectors and geographies.

Increased understanding

Over my time in corporate life, I have seen a sea change in the investor and corporate view of social and environmental issues. These are no longer seen as “nice to have” considerations that form part of siloed conversations between a handful of Socially Responsible Investors (SRI) and CSR managers in the companies they invested in.

In 2020, we are seeing profound change in three key ways:

  1. Understanding  

The understanding of investment risk from poor ESG performance is very much more sophisticated. Climate change, plastic pollution, biodiversity loss, human rights abuses are not just material to NGOs. They are material to investors too because they affect corporate success so clearly now, as new low carbon business models emerge (coal to wind power, diesel to electric mobility; meat to plant based diet).

  1. Transparency 

Reporting and the benchmarking it enables is making abundantly clear which corporates and investors are leaders, middling and laggards.

  1. Scale  

We are seeing action beyond the ‘usual suspects’ with a whole raft of companies being swept into the ESG dialogue – partly because investors are collectively asking for action. For example, the Climate Action 100 group of investors – with $47 trillion under management between them – has challenged the 161 largest corporate carbon polluters to become #NetZero, i.e. dramatically reduce their carbon emissions. It is also as a result of supply chain dictate from companies such as Walmart demanding that its 50,000+ suppliers meet high ESG standards.

Covid-19 as the catalyst for change

And what’s driven this sea change? The pandemic has been a tremendous accelerator of a general shift towards ESG.

  Citizens  

In poll after poll, citizens have said to corporates, investors and governments that as we rebuild post-Covid: let’s not go back, let’s go forwards and #buildbackbetter.

  Visibility  

In the past, many ESG issues were “out of sight, out of mind”, not just for citizens but also for corporates and investors, remote from the global supply chains that created wealth for them. No longer. Wildfires from the Arctic to the West Coast of the US to Brazil and flooding from Southern USA to Bangladesh are making the climate crisis a reality.

  The Fourth Industrial Revolution  

Innovation is finally giving us the tools to meaningfully tackle these huge and existential crises. No longer trying to track and trace billions of products from thousands of factories, farms, forests, fields and forests using Excel spreadsheets. Now AI and Big Data can help us follow these flows. Innovations in batteries, 3-D printing, vertical/indoor farms, biotechnology and more should energise us all and Covid has accelerated the shift to this digital economy. We can use #Tech4good.

While ESG has taken two decades to limp apologetically out from the shadows to stand on the edge of the main stage of financial services, it will not stay on the edge. Soon, it will be centre stage as we shift from ESG as risk management to sustainable business as opportunity.

Wherever we look, environmental and social issues are becoming the prevalent business model. In the last few weeks, Legal & General Investment Management has launched a climate change model to assess the risks presented by global warming, which will be integrated across investment processes. There has also been recent important progress on diversity and inclusion with Legal & General calling for FTSE 100 companies to increase minority representation on boards.

To find out more about how corporates and investors can make sure they are on the right side of these dramatic marketplace shifts, join our upcoming webinar, in collaboration with Financial Services Forum. Taking place this Thursday from 9.30am-10.30am, it’s not too late to register.

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