As if corporate managers didn’t have enough to worry about, they must now consider a new business challenge: investors are increasingly looking towards non-financial data to determine your company’s risk.
Environmental, social and governance strategy (ESG) refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business. The overall market for ESG investments has swelled to $8.7 trillion in U.S. assets under management last year, up 33% since 2014, according to the U.S. SIF Forum for Sustainable and Responsible Investment.
In the past, a small class of investors would utilize ESG data through a screening process, mainly to filter out certain investments from an ethical perspective (tobacco, gambling, human rights violations, etc).
But today, a growing number of institutional (think: pension funds) and activist investors are linking ESG data with financial performance to make investment decisions. “This is a way of reducing risk,” Clifton S. Robbins, CEO of Blue Harbour Group LP said in an interview. “If we can add one more lens to look through that helps us determine risk, that’s fantastic.”
This shift in how investors are determining your company’s investment risk is being met with new analytical tools to make access to ESG data easier than ever before. Just this week, the Wall Street Journal announced State Street Corp.’s new tool to gauge environmental, and other social risks. “We have the root data, everything about the company itself,” said Lou Maiuri, head of State Street’s analytics and markets businesses. “We sit on 12% to 15% of the world’s assets.”
And it’s not just big investors – the little ones are paying attention as well. The relative proportion socially responsible investments made by individuals in Canada, Europe and the United States increased from 13% in 2014 to 26% at the start of 2016, according to the Global Sustainable Investment Alliance’s newly released Investment Review.
As a manager, how are you thinking about these issues? Is this a challenge for you? I’d love to hear from you for a future blog post. In exchange, I will send a copy of Thomas Friedman’s new book, “Thank You for Being Late” to the first five people who respond.
In the meantime, here are three things you can do today to get a jump start:
- Ask your employees what they care about. This is one of the first steps to developing a purpose-driven workplace. Focusing on purpose rather than profits builds business confidence and drives investment. Additionally, 73% of employees who say they work for a purpose-driven company are engaged, whereas only 23% of employees are engaged at companies that are not purpose driven.
- Maintain an ongoing dialogue with employees on social issues. The old adage of telling employees to leave personal issues at home is over. Four out of 10 working Americans say they take care of personal or family needs during work and about a quarter report that they regularly bring work home (26%), work during vacations (25%) and allow work to interrupt time with family and friends (25%). These were among the findings of a survey by APA’s Center for Organizational Excellence.
- Ask the public for solutions to your sustainability challenges. Many leaders are afraid to openly discuss their company’s negative impact on the environment at the risk of gaining bad publicity. IdeaBuzz is a turn-key solution for hosting a low profile contest to an existing crowd of problem solvers to discover new solutions. Additionally, sustainability ideation has been proven to increase overall innovation performance and competitive advantage.
Today’s corporate managers must now consider both financial and non-financial (ESG) factors when evaluating company performance and setting strategic goals. “When we call a CEO we are going to be asking about this,” Mr. Robbins said. “We’re going to hold you accountable to what we’ve talked about.”
This blog post is part of a series authored by IdeaScale employees. It showcases how they’re thinking about crowdsourcing and innovation as part of their daily routine. Feel free to ask questions or make comments.
This post is by Josh Folk, VP of Global Sales at IdeaScale