By Louay Dahmash
Ever wondered why the philosophy of ESG has become such a critical part of the business narrative today? A brief lesson in contemporary history would tell you why.
It was first enshrined in the United Nations Principles for Responsible Investment (PRI) back in 2006, when ESG was introduced as a voluntary framework for investors to incorporate crucial socio-economic issues into their decision-making. At the time there were just 63 signatories; today there are 1,500 investment institutions representing approximately US$62 trillion assets under management - an apt reflection of the shift in consciousness within the community about the impact of ESG issues on investment portfolios.
Previously, businesses aimed at making a profit, with return on investments and stable growth being considered benchmarks of success. The profit goal remains unchanged. However, with humanity at the brink of a climate crisis, today's corporate world seeks a balance between shareholders’ profits, responsibility for employee well-being and a sustainable future. Therefore, as we finally see an end in sight for the COVID-19 pandemic, ESG investment is being seen as a fundamental component of business management.
Governments Need to be Supported
Climate change has made this decade a turning point for humanity and governments are up for facing the challenge. For instance, the UAE government has pledged to transition to a green economy by following the Green Agenda (2015-2030) which outlines a number of sustainable development initiatives for a better future.
Similarly, companies such as Dubai Financial Markets (DFM), a member of the United Nations Sustainable Stock Exchange, are steering listed companies towards ESG best practices with their recently launched Sustainability Strategic Plan 2025 to advance sustainable investment in the region.
But can governments or institutions alone do the job? Businesses have to step up as well. They need to work with governments and other structures to bring about systemic change and create a sustainable world. At Autodesk, we are committed to catalysing change in the AEC industry and empowering innovators to create new paths to efficiency, sustainability and growth and in a bid to do so, has adopted a carbon neutralisation plan. In addition, we have issued $1 billion of ESG bonds which will be used to fund projects that will bring the company closer to achieving our sustainability goals.
Gennext as drivers of change
Companies also need to think about the future generation. Baby Boomers and Gen Xers who currently hold leadership positions in corporations and the public sector will soon be replaced by Millennials and Gen Z who are passionate about creating a positive change. For these future leaders and investors, meeting the standards in the ESG is critical. Moreover, in a very competitive environment, ESG investment also helps to acquire new and retain existing talents.
So as a leader, ESG investment is a top trend to consider for the future of your business. Through internal programs towards environmental responsibility, companies can manage risks, which in turn will increase revenues and even attract investors.
Corporate ESG policy is not just a tick or a couple of paragraphs in a report. Many companies rank sustainability as a key measure of progression, an indication of their focus on long-term development and future-thinking abilities.
How to approach ESG investing
In 2020, the World Economic Forum (WEF), the International Business Council (IBC) and the Big Four (Deloitte, PwC, KPMG and Ernst & Young), came together to create a core set of global common metrics and disclosures on non-financial factors for investors and stakeholders.
The purpose of the resulting ‘Stakeholder Capitalism Metrics’ and disclosures is to empower companies to align their mainstream reporting on performance against ESG indicators and track their contributions towards the UN Sustainable Development Goals (SDGs).
Companies with strong ESG-led stocks should drive investor intrigue, as these firms stand better prepared for and protected from disruptions. This, in turn, reduces shareholder risk while also allowing for transparency for investors.
Secondly, no matter where a company currently stands in their ESG goals, it is imperative to develop achievable and measurable objectives. Investors and companies should also agree to common standards of comparison on an international scale. Without the said indicators, addressing the gap in reporting between organisations will remain significant.
It is this type of prudent management that drives investors’ interest and provides better returns of investments, allowing for the betterment of the planet as well as an organisation’s bottom line.
(Louay Dahmash is Senior Director, Autodesk Middle East)
(In Syndication with the Asian Business Leadership Forum)