Have you noticed that there are a couple of things that are odd about the recent spate of public outbursts of elected officials on environmental, social and corporate governance issues, especially in the United States? Strange thing number one: All of these are politicians, yet world-class Republicans, who used to be a pro-business party. The second weird thing: Most companies don’t waste time getting control, they adapt — and find that doing so pays off.
Yes, you read this right – if done right, adopting ESG metrics can make money – for businesses and investors – while improving livelihoods and helping slow the effects of climate change.
An article in this month’s Toronto Star titled A new report finds that the world’s biggest carbon slashers – including TransAlta and CP Rail – are also making money.A clear example is that across industries, companies willing to invest in changing their behavior and reducing their environmental impact, particularly in the key area of carbon reduction, can preserve their bottom line and in some cases increase their profitability due to the cost reductions inherent in new technologies. This in turn, of course, leads to increased benefits for shareholders and other stakeholders. This is demonstrated by a study by Morningstar in which the group concluded that investors can build a global portfolio of companies with positive ESG attributes without compromising returns.
Similarly, MSCI’s research to rank funds by their exposure to ESG risks shows a clear and growing preference for investors for funds and companies with strong ESG compliance. The MSCI study raised funds in groups ranging from AAA (the fund is exposed to companies that tend to demonstrate strong or improved management of financially relevant ESG issues and may be more resilient in the face of disruptions arising from ESG events) to CCC (the fund is exposed to companies other than demonstrating management appropriate to ESG risks which may be more vulnerable to disruptions arising from ESG events). MSCI has concluded that more than $1 trillion has moved from funds at the lower end of the scale to the higher end over the past decade — a movement that appears to be accelerating. When examining an investor profile, MSCI’s analysis found that 88% of high net-worth millennials actively review the ESG impact of their investment properties, while 89% of the same group expect financial professionals to dig deeper into the company. ESG factors and history with ESG issues before recommending an investment opportunity.
On the other hand Not Taking action to do more on ESG issues has significant negative consequences for businesses, investors, and stakeholders.
A recent study by the Harvard Business Journal indicated that insurance giant Swiss Re says that Not Climate action will destroy about 18% of global GDP by 2050. If you stop and think about it for a moment, that’s a shocking statement of risks. But Harvard followers have taken this a step further, studying the diverse consequences of climate change in which some regions, such as Siberia, may find extended growing seasons, but elsewhere (such as Phoenix, my home) cities can become too hot to be livable while Some island nations will be swallowed up by rising sea levels. This means, they concluded, that the downside risk in some regional economies and (in the case of) national islands could be 100%, not 18%.
There is a third strange thing about political opposition to ESG. If investors want to invest their money in companies that engage in positive climate action, and if companies are actively revising their business models to be more climate friendly – what problem are these politicians supposed to care about?
When you break down ESG principles into their core components, it simply amounts to doing the right things for people and the planet.
what’s wrong with that?
Originally published at San Jose News Bulletin
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