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ESG AS A SUCCESS FACTOR – WHAT COMPANIES NEED TO KNOW

AVVIO DELLE RIPRESE DELLA LA NUOVA SERIE ORIGINALE ITALIANA NETFLIX PRODOTTA DA LUCISANO MEDIA GROUP
8 Febbraio 2021
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18 Maggio 2021

ESG AS A SUCCESS FACTOR – WHAT COMPANIES NEED TO KNOW

Greenwashing is no longer an option for companies

by Simona D’agostino Reuter

ESG as a success factor: Environmental, Social and Corporate Governance place more and more great value on sustainable management. Greenwashing is no longer an option for companies.

Why? Maybe because our society’s awareness of environmental and social issues is rising more and more. 

HOW CAN COMPANIES MEET ESG REQUIREMENTS? Experts start to affirm that if companies do not engage in ESG properly, they will be squeezed out of business…

The pandemic has put social factors related to ESG on the corporate agenda. Last year it was environmental issues. We called it the ‘Greta effect’. Despite the short-term emphasis on financial resilience and viability, COVID-19 was able to bring increased focus on non-financial performance over the next 12 months.

Sustainability attracts investors: high ESG ratings can be linked to higher performance and there is a lot of talk about ESG becoming “the new normal” in investing. The banks are already looking at ESG ratings. The worse the rating, the more expensive the loan and they will lose access to the green bond market. Under proposed changes to the MiFID regime which are likely to be adopted in 2021, all EU institutional investors will also have to ask their clients about their ESG preferences.  Big funds such as BlackRock over the last four-five years have already started to cover five broad ESG topics: board quality, environmental risks and opportunities, corporate strategy and capital allocation, compensation that promotes long-termism and human capital management.

ESG is becoming an essential part of the long-term strategy of many companies

For the Nordic companies and investment banks, for instance, it has been “the normal” almost for a decade. Scandinavian companies are much better positioned here. It’s part of their DNA. They have been doing it for 20 years. Traditional companies should be guided by this.

In the end, the question for them is not only how much they can gain from ESG, but above all how much they could lose as a result.

Companies are now really beginning to realise the impact that climate issues have on a company’s business and how it affects its business model and resilience. Corporations are doubly affected: for example, if they do not reduce their carbon emissions, they will get bad press, obviously, but they will also eventually feel the impact on their business operations, for example in the form of extreme weather conditions. So we might affirm, in meeting ESG criteria, companies are no longer just protecting their reputation, but also their bottom line..

Moreover, growing pressure for companies to enhance board oversight of ESG performance is driving a shift in board composition. This is evident in the percentage of companies that have formed Sustainability Committees. dedicated ESG events are expected to play an important role in highlighting ESG achievements, and satisfying the information needs of various stakeholders including ratings providers, as companies seek to set their own ESG agenda.


More sustainable bonds

Last week Goldman Sachs announced ESG finance to become ‘core part’ of strategy and thus is expanding world of sustainable finance

They plan to issue more environmental, social, and governance bonds on a regular basis as part of its plans to deploy US$750 billion in sustainable financing, investing and advisory activity by 2030, according to Carey Halio, chief executive officer of Goldman Sachs Bank USA. It sold bonds aimed at financing environmentally and socially conscious projects for the first time.

“We expect to issue once every 12 to 18 months with respect to benchmark issuance and we have the flexibility to do other kinds of liabilities as well rather than the benchmark bond,” said Halio in an interview Friday. “We think it will be a core part of our strategy going forward.”

Goldman said its sustainability bond was well received by investors from the U.S., Europe and Canada, in addition to other countries, including new investors.

The firm will also consider issuing in different currencies in the future, including in euros.

Financial firms globally have raised about US$25.5 billion pf ESG-linked debt this year, making the sector the biggest issuer of sustainable bonds after governments, according to data compiled by Bloomberg.


The Framework – Top priority amongst asset managers and institutional investors

As ESG continues to grow, so do the challenges associated with it. One of the main issues is that the growth in ESG investing has not been matched by greater availability of data.

All ESG investment strategies require reliable and accurate data to both construct ESG portfolios and verify that managers have succeeded in meeting an investor’s ESG objectives. Without a doubt, there needs to be standardisation across the sector so that investors and companies can make informed decisions based on the data available to them, knowing that the data is valid and accurate. Once standardisation has been established, reporting on ESG investments will become significantly easier.

A major problem is that there is no uniform, mandatory standard

There are three main standards: GRI, TCFD and SASB.

The robustness of ESG data continues to lag behind that of other data types, with data providers still vying to become the established benchmark provider. There are many companies in Europe that focus on ESG criteria, for example good working conditions, but they do not even realise that this relates to ESG criteria because the terminology is unclear. This in turn means that they do not communicate it properly on the market and neither investors nor rating agencies can take it into account.

Companies do not know which one to follow because they all have different priorities. This confuses them a lot.

Maybe SASB is a standard set with the help of the major financial institutions. Because in the end, companies want to attract investment so they need to look at who the buy side follows.
GRI is more granular and is important for other stakeholders. So this makes sense, too.
TCFD focuses on the company’s carbon footprint and it will be made mandatory by regulators in two years. So it makes sense to deal with this issue in advance.

Maybe companies should follow all three standards? At least until these are either unified in part or in full…

What can we say to companies? Surely: DO NOT PANIC

The whole ESG area is still relatively new. So companies should just take a breath first and ask: where do we stand in comparison to our competitors? And what should next steps be?”

The industry is calling for a single, uniform and mandatory standard set by the regulators. The Taxonomy Regulation recently introduced by the EU is a significant step in this direction.

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