09 Dec Sustainability investing: looking in from the outside
“Globally, sustainable investing assets in the five major markets stood at $30.7 trillion at the start of 2018, a 34 percent increase in two years. …Responsible investment now commands a sizable share of professionally managed assets in each region, ranging from 18 percent in Japan to 63 percent in Australia and New Zealand. …Clearly, sustainable investing constitutes a major force across global financial markets.” (Global Sustainable Investment Alliance, 2019)
Original article appeared on GreenBiz.
According to emerging research, investors are “finally” catching onto the importance of using ESG (Environmental, Social and Governance) to inform their investment decisions.
With finance being the “newest kid” on the sustainability block, we’re only just getting to the point where we can begin to envision a realistic transition to a more sustainable finance system.
But there’s still a lot of work to do — especially if all 9 billion people on Earth are to live well, within the limits of the planet by 2050 (Vision 2050, WBCSD). To accomplish this, every company and industry needs to take meaningful action, together.
But we can’t move forward until we’re honest with ourselves about the reality of the speed and scale of the sustainability transition.
If the sustainability trend is so positive, and investors finally “get it,” then why isn’t the world moving to a more sustainable financial system faster, and why aren’t we seeing more action on the ground?
Below are some reasons for slow progress and advice about how to address them.
Investors and business leaders don’t know what sustainability means, avoid using the ‘s’ word
Sustainable, responsible, green, ES, multi-capital, integrated, non-financial, pre-financial, extra-financial, intangible, impact investing, impact valuation, SRI, stewardship — these are just some terms we use to try to describe long-term “sustainability” and the list goes on.
We’ve created a whole ecosystem of terms, acronyms and technical jargon that makes people think a) they need a Ph.D. to understand what’s happening in the sustainability world, b) people using these terms must be out of their mind or c) it’s not worth bothering to understand something so technical and complex.
Believe it or not, the “s” word (sustainability) can be a complete turn-off for some. How can sustainability professionals overcome?
Know your audience. Some of your stakeholders may love sustainability and really get it, but hard-nosed business-focused professionals may want to avoid the word altogether.
It’s possible to make sustainability arguments more business and investor-focused, for example by talking about material risks and business opportunities. The whole exercise is about creating stable returns in the long-term, navigating in a changing world and future-proofing your business in a shifting global economy.
Investors and business leaders — secretly or not so secretly — think there must be a significant tradeoff when adopting sustainability practices
Skeptics may think that the “sustainability means good business” argument is too good to be true — otherwise everyone would be doing it.
But this is an antiquated myth that’s already been busted. Recently, an excellent Harvard Business Review article, a BNP Paribas thought piece and study after study confirm a positive correlation between ESG and corporate financial performance, even if this does not necessarily imply causation — including lower operating costs and increased share price.
Oftentimes, ESG and sustainability arguments can seem emotional, dogmatic, tree-hugging, feel-good or (even worse) touchy-feely. Mainstream business leaders may think that sustainability is the “right thing to do,” which seems to insinuate (to some) it will come at an insurmountable cost.
But run your business with the view to being around for generations to come, and you may just realize — there isn’t a ‘catch’ after all: Sustainability is just good business.
To get past this misconception, sustainability professionals need to pitch their messages strongly, using facts.
Business leaders and investors may think that sustainability is a marketing coup, and that the numbers aren’t credible
This one’s tough. Until we have assured, financial-grade, consistent and comparable ESG data, there will always be the risk of “washing” (greenwashing, SDG-washing, purpose-washing, pink-washing and so forth).
Here, it’ll be important for customers, clients, investors, managers, board members and sustainability professionals to ask the tricky questions: Does my company measure the most relevant information on impacts, risks, dependencies? Does it know where the numbers came from? Are they credible?
Most companies eventually will have to do this anyway — after all we’re on our way to “radical transparency.” In the long run, hiding information will be a greater risk than sharing bad performance and explaining what you’re going to do about it.
Let’s be honest: countless new business opportunities are arising from sustainability — from consultants and experts, to products and startups. The bubble shouldn’t be intentionally grown for personal or organizational gain. It’s critical that the sustainability community stop the multiplication of terms, initiatives, bespoke assessments or reporting frameworks unless they are absolutely necessary.
The most important thing we can all do is work together as a global team, actively striving to simplify the landscape and build on each other’s work, driving comparability of performance, and use the tools already available for creating a uniform approach.