Social & Environmental Concerns Will Define Future Of Investment & Companies
December 6th, 2017 by Joshua S Hill
Doing business while simultaneously considering the impacts of social and environmental concerns is set to define business and investment moving forward, according to global asset manager Schroders.
London-based and centuries-old multinational asset management company Schroders has been publishing a series of articles “assessing the outlook for next year” under the ‘Outlook 2018‘ banner, looking at everything from global equities through to emerging market debt investments. On Tuesday, Global Head of Stewardship Jessica Ground tackled the Sustainability Outlook for 2018, in which she makes the case that “Examining companies without considering the social and environmental backdrop that will define future leadership is becoming untenable.”
Despite the fact that equity markets around the world hit new highs in 2017, Ground highlights “tensions in the real economy are setting other records which point to growing challenges in the years ahead,” specifically increasing average global temperatures and extreme weather events, stagnating of median real wages, and record low trust in governments.
Of particular interest to CleanTechnica readers is Schroders’ and Ground’s assessment of sustainability issues and their impact on company and investment performance.
Earlier this year Schroders launched its Climate Progress Dashboard which is intended to provide investors with “a unique insight” into the global progress towards limiting global warming to the 2°C target and the overall progress of the transition to a low-carbon global economy. At the time of its launch in July of 2017, the Schroders Climate Progress Dashboard — based on a framework of 12 indicators — predicted that we are on a path for a temperature rise of 4°C.
According to Ground, the challenge presented by climate change “will reach every corner of the global economy and investment sector.” Despite the action already seen, and as the Climate Progress Dashboard indicates, “political ambition is lagging action” — although Schroders expects the gap between ambition and action will close. There are already plans to put a price on 25% of the world’s carbon emissions, but Ground expects that the “next step will be for those prices to ratchet to levels at which they have a meaningful impact on business models and corporate strategies.”
Importantly, looking forward we should begin to expect to see more and more companies beginning to implement environmental and socially responsible actions that are not just intended as a luxury to make the company look good, but are vital for the company’s economic best interests. According to Ground, “failure to understand the impacts of moving to a low carbon global economy will impact business models and is looking increasingly irresponsible.”
Environmental, Sustainability, and Governance (ESG) integration is steadily becoming more mainstream, “with everyone from the largest pension fund in the world down endorsing the Principles of Responsible Investment” — “the world’s leading proponent of responsible investment,” according to the group’s website — Ground expects “more scrutiny on the outcomes and impacts of all this activity.”
In conclusion, Ground explains that while there is “ample evidence” of the increasing environmental and social challenges and the likelihood that they will continue to grow and accelerate in 2018, “the closing gap between social and political scrutiny of the corporate sector’s role in addressing those challenges is of more significance to us.”
“Examining companies without considering the social and environmental backdrop that will define future leadership is becoming untenable.”
“We believe the winners of the future will be those management teams, boards and investors who realise that both the cost and value of a social licence to operate is rising. These winners will adjust their business models to build, identify and support those actions which will create true business sustainability.”
From my own humble perspective, we have seen many businesses and financial institutions begin to highlight the importance of social and environmental concern as part of their business-as-usual practices. Further, the global divestment movement has now reached a level of maturity where divestment headlines are not as fantastical as they once were two years ago.
Pension funds and investment groups are rapidly imposing their will on companies and requiring a measure of sustainability and environmental awareness — however, as we have seen recently, transparency is still an issue that will need to be addressed in the coming years. In September, multinational banking group HSBC highlighted the increasing desire for transparency coupled with the growing frustration with the lack of transparency. Separately, in November CDP (formerly the Carbon Disclosure Project) published a new report dealing with deforestation and similarly found that a lack of corporate transparency concerning environmental policies is masking corporate risk, a risk which is handed straight on to the investor.
Looking forward to 2018, if you want to know what will be the growing trend for companies and investors around the world, look to the growing clamor of investors demanding greater transparency from those companies they invest in.