How Investors Are Driving The Sustainability Agenda

Earth Is Not Too Big To Fail

It may seem ironic, but it is increasingly investors, previously mooted as harbingers of greed, who are increasingly pushing for their investments to show real traction on sustainability and environmental issues. The reason being, in short, that they recognise that Earth is not too big to fail and that they need to drive the agenda in order to ensure long term growth for their investments.

However, whilst the majority of corporate leaders recognise their organisation's role in tackling urgent challenges such as climate change many still believe that pursuing a sustainability agenda runs counter to the wishes of their shareholders and investors.

This view is outdated, today, institutional investors and pension funds have grown too large to diversify away from systemic risks, so they must consider the environmental, social and governmental (ESG) impact of their portfolio.

The numbers back up the view that the capital markets are in the midst of a sea change. In 2006, when the UN-backed Principles for Responsible Investing (PRI) was launched, 63 investment companies with $6.5 trillion in assets under management signed a commitment to incorporate ESG into their investment decisions. By April 2018, the number of signatories had grown to 1,715 and represented $81.7 trillion in Assets Under Management (AUM). According to a 2018 survey by FTSE Russell, more than half of global asset owners are currently implementing or evaluating ESG considerations in their investment strategy.

Preparing For The New Era

The Harvard Business Review identifies 5 actions that companies can take to prepare for the new era of sustainability investing:

1. Articulate Your Purpose.

Larry Fink has summed this up nicely when he says:

'To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society....Purpose is not the sole pursuit of profits but the animating force for achieving them...Profits are in no way inconsistent with purpose - in fact, profits and purpose are inextricably linked'

Click here for a blog post I wrote about 'Organisations With Purpose'

2. Improve Engagement With Shareholders.

3. Increase Involvement With Middle Management.

4. Invest In Internal Systems For ESG Performance Information.

5. Improve Measurement And Reporting.

In conclusion, a sea change in the way investors evaluate companies is underway. Its exact timing can't be predicted, but it is inevitable. Large corporations whose shares are owned by the big passive asset managers and pension funds will feel the change the soonest. but it won't be long before mid-cap companies come under this scrutiny too. All companies should seize the opportunity to partner with investors willing to reward them for creating long term value for society as a whole.

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This blog post is an abridged version of an article that appeared in the Harvard Business Review, along with my own thoughts on the subject.