Environment, Social and Governance (ESG). Three words that between them encapsulate some of the most significant predictors of business success. Time and time again it can be shown that companies that have strong policies in place when it comes to ESG are also those that are geared for success.
That’s the opinion of Stephen Nolan, chief executive of Sustainable Nation Ireland, who goes on to say that while there is much political uncertainty in the world, some things in business are certain and chief amongst them is that future-proofed companies make better investments.
“ESG takes over from where corporate and social responsibility (CSR) leaves off. It’s bigger in scope, more significant in focus and more important to the future of business. However, because it’s holistic, ESG is central to how a company operates,” he said.
Responsible investment takes this into account, argues Nolan, and companies that have strong ESG policies in place are well positioned to receive capital.
“When asset owners or managers are looking at a company with a view to investing in it, they look through the lens of environmental, social and governance factors. They want to know what a company’s environmental impact is? How is it governed? What checks and balances are in place to make sure it’s well run?” said Nolan.
“From a social point of view, they might want to know what a company’s diversity strategy is, for example? Does it engage with its local community? The reasons for this are strongly connected to risk management, to the potential for the company to thrive in the future.”
While ESG is a broad topic, the section that Sustainable Nation most closely focused on in 2017 and into Q1 2018 was helping companies improve the environmental element of their policies. It’s not hard to see the potential issues that climate change can present to companies, from the risk of flood damage to geo-political market risks.
“Are you disclosing through your annual report each year what the environmental impact is of your plants? And how you are mitigating against. Many companies are now. Take Michelin, the tire company, for example. It has over 100,000 staff globally with €20 billion in annual revenue,” said Nolan.
The company participates in the CDP (Carbon Disclosure) programme, factors a carbon price into its CAPEX investment decisions and pays a percentage of the variable pay of the CEO and its executive team based on the company’s environmental performance against targets.
According to Nolan, embracing ESG and in particular the environmental element of the process is about de-risking the activities of a company. Sustainable Nation Ireland is charged with raising awareness of the benefits of responsible investment under the Government’s International Financial Services (IFS) Strategy 2020 Action 2018.
Supported by leading Irish located firms, to this end in early 2017 it created the Sustainable and Responsible Investment Forum Ireland. The forum’s mission is to drive the evolution of long‐term, responsible and sustainable investment practices in Ireland.
“The forum is overseen by a committee with senior representation from Irish Life Investment Managers, the Ireland Strategy Investment Fund, Mediolanum, KBI Global Investors, Amundi and Cantor Fitzgerald, as well as the Irish Association of Pension Funds, KPMG and the Department of Finance as an observer,” said Nolan.
“It meets to discuss the responsible investment agenda and determine how best we can advance this agenda across all asset classes. Started in Q1 2017, the forum is raising awareness of the agenda in Ireland by increasing understanding and acceptance of the key drivers across policy makers, investors, investment managers and intermediaries. We also have an extensive skills programme developed to support industry-wide up-skilling. We’ve brought together some of the biggest players in Ireland to help us do this, which in itself is a testimony to the leadership credentials of these firms.”
All of this activity is set against significant global momentum building around the sustainable and responsible investment agenda, the latest being the European Commission’s Action Plan on Sustainable Finance. Today, considerable efforts are underway to ensure that private capital is mobilised in support of the delivery of the Paris Agreement on Climate Change and the UN Sustainable Development Goals.
For more information on Sustainable & Responsible Investment Forum Ireland and its activities, please contact [email protected]
Pic: Professor Andreas Hoepner, UCD Smurfit Business School; Tony Hay, Publisher Responsible Investor; and Stephen Nolan, CEO Sustainable Nation Ireland