ESG – Need Something Stronger?
If you're not making a social impact, investors won't invest with you in the future. For many years now, Corporate Social Responsibility has been the 'get out of jail' card for many financial institutions wanting to tick the box marked 'moral conscience'. The result? Reluctantly created social policies delivering activities and projects, that were, at best, token gestures to pacify investors and the public at large. In the years of the CSR boom, most prominent financial institutions merely submitted investment and activities in the required proportions to exonerate them in the socially responsible arena.
In most cases, big corporates' token efforts were as effective as trying to get drunk on alcohol-free beer. In short, there was no heart, energy, belief or vision to do anything genuinely constructive. The opportunity to create ideas that would proportionally represent and align perfectly with their corporate strategy while delivering authentic and practical solutions had been lost. Worse still, trust in those organisations had been eroded.
But today, that's all changed. CSR is dead, and ESG – (Environmental, Social and Governance) is now the benchmark from which we can no longer hide. Asset managers and more progressive financial investment institutions increasingly rely on ESG ratings agencies to assess, measure and compare companies' ESG performance. More recently, data providers have applied artificial intelligence to rate companies and their commitment to ESG.
Businesses need to be open about their ESG pedigree in order to win investment.
Alva Group blog 2021
Many in the investment industry believe the development of ESG factors as investment analysis considerations is inevitable. The evidence toward a relationship between consideration for ESG issues and financial performance is becoming greater. The combination of fiduciary duty and a recognition that investments need to be sustainable in the long-term has meant that ESG concerns have become increasingly important in the investment market. ESG has become less a question of philanthropy than practicality. Asset managers and other financial institutions increasingly rely on ESG ratings agencies to assess, measure and compare companies' ESG performance.
Based on the belief that addressing ESG issues will protect and enhance portfolio returns, responsible investment is rapidly becoming a mainstream concern within the institutional industry. Private equity and other industry trade associations have developed a number of ESG best practices. These include a due diligence questionnaire for private fund managers and other asset managers to use before investing in a portfolio company.
As the Covid 19 crisis unfolded, many businesses and investors shifted their focus from profits to people.
Stephen J Hall - Partner, KPMG
Many banks have already started making moves. ESG-related announcements coming out of banks before COVID-19 were unprecedented. Bank of America has pledged US$300 billion to sustainable investments. Goldman Sachs announced they would spend US$750 billion on sustainable finance over the next decade. Virtually every large global bank has made some sort of commitment — both financial and otherwise. These leaders are making ESG a CEO-level and Board-level mandate; they are elevating the issue to the highest levels of the organisation.
In a recently published paper by KPMG, Steven J Hall, Partner, Financial Risk Management, says:
"As the Covid 19 crisis unfolded, many businesses and investors shifted their focus from profits to people; human impact became more important than economic impact. Issues related to human equality, access to health services and societal welfare topped the agenda. It quickly became clear that the environment and social issues have a deep and direct influence on economic stability."
Younger generations are said to be choosing their bank based on their ESG credentials.
Stephen J Hall - Partner, KPMG
He goes on to say that:
"Banks are starting to feel pressure from their customers and the public at large. Customers want to bank with a firm that reflects their views and beliefs; younger generations, in particular, are said to be choosing their bank based on their ESG credentials."
Within ESG compliance, most financial institutions are struggling with the middle bit the most. Having authentic ideas for solid and practical 'social' policy and activities is increasingly becoming the most significant sticking point. Environment and Governance are almost academic and can be implemented more easily, whereas the 'Social' offering needs a creative leap. Innovation and critical thinking are needed to ensure practical and authentic solutions are implemented. These will genuinely engage investors and generate goodwill and loyalty from customers and the public at large. The social ideas can no longer be just a statement or strategy; they need to be relevant and real and alive; they need to be measurable and certified.
A third of consumers did business with a company based on its stance on social issues.
Allianz Report 2018
Over the last 15 years, ASHA & Co has created many award-winning, innovative social projects. These have demonstrably changed perception, influenced policy, driven revenue, built reputation and delivered sustainable solutions for many communities. Most often, these projects have been designed to align perfectly with corporate strategy and positioning. All the projects to date have had significant public, corporate and government engagement and have, in specific cases, been responsible for policy change.
If you are struggling with your social objectives, we will partner with you and help you deliver authentic and practical solutions that fulfil the compliance and complete your aspirations. More than this, the projects we create with you will provide lasting, positive change for their targeted communities.
ESG is the new measurement and is here to stay. It is in its infancy but will evolve fast and will be an increasing focus for investors and, of course, executives alike.
Doing nothing is simply not an option.
– Marksteen Adamson
