Sustain 2020 was nothing short of engaging and informative. We brought global industry leaders together – virtually – to discuss sustainability and CSR trends and goals for the coming year so we can all dare together.
One critical theme that stuck out: Companies are under increasing investor, regulatory and societal pressure to act sustainably and disclose progress – and they’re leveraging ESG ratings to understand how they can specifically improve and create a common performance standard.
Here are three sustainable finance takeaways to help you in your own journey.
Sustainability is Strongly Encouraged by All Stakeholders – Especially Investors
More and more financial companies are being urged to take sustainable action due to stakeholder pressure – particularly from investors. When evaluating downside risk, sustainable strategies consistently exhibit about 20% less volatility than traditional strategies – so it only makes sense that investors are paying attention.
According to Viviana Occhionorrel, ESG Director at Astorg Partners, investors increasingly expect disclosure on ESG risks before engaging with any company – and they especially want to know what companies are doing to combat climate change given the financial implications. CDP found companies could face roughly $1 trillion in costs related to climate change in the decades ahead unless they take proactive steps to prepare.
Aside from the bottom-line impact, investor interest in sustainability is driven by two main forces. Societal demand for sustainability is skyrocketing – from consumers and millennial employees alike -- and environmental regulations and standards are increasingly being enforced, requiring companies to disclose progress on sustainability performance. As a result, investors are increasingly helping companies create action plans to improve performance and reduce risk.
Burcu Senel, Global Head of Propositions at HSBC shared that within her company, sustainable action is about societal return. HSBC has pledged to provide $100 billion in sustainable financing and investment by 2025, as part of its set of commitments to support the transition to a low-carbon economy and promote sustainable growth. The company reconfirmed their commitment last month and are half-way to their goal.
A Common Language Around Sustainability is Crucial
When it comes to sustainability, Senel believes ESG needs to be validated and accredited by a third-party rating provider -- an expert that is advanced in assessments. This creates a common language where global parties can communicate with shared understanding and benchmarks. It also creates a standard for performance. With ratings, companies are aligned on performance expectations for their industry and can benchmark progress against those KPIs.
At Astorg Partners, Occhionorrel takes this common language to the next level by fostering a sense of ownership. Her team encourages and supports its companies in developing their own sustainability action plans to improve performance based on ratings. It’s up to those companies to demand participation and engagement from their networks to ensure real impact and reduced risk.
Both experts agreed that ESG ratings make it much easier to have a productive discussion around sustainability performance. They can share their ratings with clients and work together on addressing issues proving to be especially important or crucial within their industry. Understanding strengths and weaknesses as it pertains to sustainability and where opportunities and threats lie for the business based on those strengths and weaknesses is a key advantage to ratings. For example, a company could discover unsafe working conditions at a supplier’s factory in China and take steps to address that safety risk across its entire supply base. Or, they could discover an opportunity to reduce water consumption throughout their supply chain and subsequently lower operating costs.
Sustainability is Not Just About Mitigating Risk – it’s About Driving Value
Occhionorrel expects to see companies prioritize sustainability from not only a risk management perspective, but also from a value generation standpoint as more businesses see the positive impact these efforts can have on society. When companies get their own footprint and impact under control, they can use sustainable operations as a force for good and make a real difference.
Senel says that HSBC sees different levels of their clients’ readiness and typologies in this area. Some are considered beginners that are in the early stages of working toward a sustainable future. Others are more advanced and farther along in their sustainability maturity. HSBC works with these companies to assess their readiness and stage and come up with a go-forward strategy from there.
As Occhionorrel shared, today’s financial and business leaders are expected to be held accountable for sustainable outcomes, engage in the conversation and actively integrate principles in all organizational processes.
To learn more about the growing criticality of sustainability and ESG ratings in financial solutions, check out the session recap, The Role of Sustainability/ESG Ratings in Financial Solutions.
Explore innovations in sustainable finance: the ING's Sustainability Improvement Loan.
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