Ethics as a financial opportunity

Those resisting ESG are running out of time – and missing out on financial gains.

If you haven’t already made room for ESG (Environmental, Social and Governance) at the top of your corporate agenda, expect external pressure to ramp up quickly. 

Consumers, shareholders, suppliers and regulators are becoming increasingly mindful of issues such as pollution, human trafficking, and the use of conflict minerals. Acting in an environmentally and socially conscious manner is thereby turning into a matter of financial necessity, rather than just personal ethics.

To sweeten the deal, the market is booming. Issuance of ESG bonds reached a record of $270 billion in 2020, and is expected to roughly double that during 2021, according to the Climate Bond Initiative. Of all those fund assets, an overwhelming majority (82 percent) is concentrated in Europe.

Skadden, Arps, Slate, Meagher & Flom LLP adds that ESG activism is also on the rise globally, with the number of ESG shareholder proposals expected to double as well, from its previous high of 171 in 2020. Shareholder pressure is already forcing fossil energy companies such as Exxon Mobil to alter their course when it comes to lobbyism and climate efforts.

Rochelle March, Dun & Bradstreet’s Head of ESG Product, says that it is high time for businesses to start adapting to this new paradigm. 

When you’re onboarding a supplier, going through due diligence and other processes — add ESG! When you’re giving a loan to a business, you must understand their background, their historical financial performance, references — look at ESG as well.”

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According to entrepreneur and sustainability expert Rebecka Carlsson, organizations downplay this trend at their own peril. “Companies that do not incorporate sustainability into their core business will face the same fate as those who missed digitalisation,” she states in a report published by the Warp Institute. “Previously, only ‘sustainability companies’ had sustainability at the core of the business, while the mainstream companies continued to operate as usual. But soon there will not be a single company with self-respect that does not seriously shed light on how its own business model needs to be upgraded, given that now, sustainability is for real.”