Gaining a Competitive Advantage with ESG

OMG! Will ESG be the megatrend that transforms our planet? Environmental, Social and Governance is certainly becoming an important trend for businesses, investors, and governments.

Robert Eccles, Professor of Management Practice at Harvard Business School, and other scholars have compiled articles on Sustainability and Shareholder Value.

He wrote in 2016 that, “Recent research provides persuasive evidence of a latent investor appetite for the reporting of material ESG information that goes beyond conventional financial statements… In April 2015, BlackRock CEO Larry Fink, in his now-annual letter to the CEOs of portfolio companies, said that investors “also have an important role to play, which is why we engage actively with companies on the key governance factors that in our experience support long-term, sustainable, financial performance. Chief among these is board leadership—in our view, the board is management’s first line of defense against short-term pressures… In a world increasingly sensitive to income inequality and suspicious of the corporate quest for profit, promoting a broader understanding of the role of the corporation in society is one of the most pressing issues facing the sustainable development movement. It will become even more important now that the Sustainable Development Goals (SDGs) were ratified by all United Nations’ Member States in September of 2015. As social expectations continue to rise about how corporations, especially the world’s largest corporations, can contribute to a more sustainable society, companies have no choice but to respond. Ultimately, the company’s license to operate comes from civil society. However, the company needs to be clear on which issues are a priority, as determined by its chosen significant audiences, and which are not. The Statement of Significant Audiences and Materiality offers the board has a unique and unprecedented opportunity to present a clear and credible view of their company’s role in society—one that can guide management’s decision-making and its interactions with its significant audiences and other stakeholders.”

A recent positive example of ESG becoming relevant is the banning plastic straws and stirrers used in drinks to cut pollution, particularly in the oceans, which is gaining popularity in several coastal states of the U.S., in Europe and with many businesses like Starbucks and Alaska Airlines. I learned that a Girl Scout began a non-profit called Jr Ocean Guardians and is credited with starting the trend!

Check out Yahoo Finance which provides a watchlist of companies that rank high for sustainability.

MSCI ranks 6,400 companies and 400,000 equity and fixed income securities globally and says this trend is catching in Asia as it has in the western world.