Expert insight into the global ESG agenda

The Lysis Group was recently approached by Bayes Business School, which is part of City University in London, to construct a panel of high calibre ESG speakers. The panel shared presentations regarding various aspects of Environmental, Social, and Corporate Governance (ESG) with a group of senior level businessmen from Kuala Lumpur, Malaysia who are all employed by different banks.?

Initial presentations focussed?on how the?ESG initiative came about, existing legislation around ESG and why ESG should form part of firms’ value propositions and strategic decision-making process. The United Nations (UN) conference regarding climate change that took place in Egypt was also mentioned where one of the key decisions taken during the conference included the agreement to set up a “loss and damage” fund (led by Pakistan after the devasting floods) to help vulnerable countries with financial assistance to tackle climate change.

A sustainable ESG framework

This was followed by a presentation from Lysis?which provided an overview of the importance of a sustainable ESG framework. Investors?are increasingly looking to make responsible investment decisions for the long-term and connect with firms that have values which match their own. ESG is adding a new dimension and increased complexity to existing risks because of?the?four main drivers of the ESG agenda in firms. These drivers include investors, consumers, employees, and the executive management, where the first three drivers are actively influencing the decisions taken by executive teams. The presentation highlighted the close link between ESS and financial crime where the latter represents a key influencer and drives major elements of the ESG framework. The presentation further explained that the governance, risk, and compliance, (GRC) capability model represents a credible tool through which firms can achieve ESG goals in a sustainable manner.?

Sustainable finance?

Andrew Bowley,?in his capacity as Head of ESG at a Tier-1 Japanese investment bank, shared his insight by focussing on how to achieve sustainable global finance. Andrew is well respected in the industry and sets the firm’s business strategy and leads initiatives to adapt the business to the developments of sustainable finance and the challenges and opportunities of climate change.?

He mentioned that The Global Financial Markets Association (GFMA) and Boston Consulting Group (BCG) published a global report in December 2020 which outlined the recommendations necessary to accelerate investment in climate finance. The report, Climate Finance Markets and the Real Economy, suggested that an estimated $100 to $150 trillion is needed, over the next three decades, to convert to a low carbon economy.?

Andrew also explained the three dimensions of sustainable finance and ESG which consist of??embracing ESG, the various business opportunities linked to sustainable finance and how firms can manage the ESG and climate risks more effectively by showcasing practical examples.?

Furthermore, he highlighted the two commitment initiatives for banks specifically, regarding ESG, which includes the UN Net Zero Banking Alliance and UN Principles for Responsible Banking commitment and mentioned that 90% of the world’s countries, and 40% of the world’s financial institutions have already made Net Zero Banking Alliance commitments.?

Last but certainly not least, the final member of the panel of speakers was KC Gregory Jones, an Alderman of The City of London, who is an environmental Barrister and a member of the U.K. King’s Council. He is also a member of the Lysis Advisory Panel and therefore provides strategic insight regarding key aspects on a regular basis.??During his presentation, Gregory shared the implications of greenwashing on the financial sector and explained that greenwashing refers to products and services that are?falsely advertised as “green” and environmentally friendly/sustainable when in fact they are not. The false marketing can dupe consumers into believing that they are helping the environment in some way by purchasing the products/services.

He illustrated the concept of greenwashing by making reference to several high-profile global firms and how they misled the public by making use of greenwashing. Gregory also mentioned that the concept of greenwashing emerged in a period when most consumers received their news mainly from television, radio, and print media, hence they couldn’t “fact-check” the way we can today. However, some countries’ advertising regulators seem to tighten their guidelines around greenwashing and the education of consumers which resulted to prompt actions taken against greenwashing activities in various jurisdictions.?

Collaboration is key

Gregory concluded by stating that?the world’s largest pension funds and insurance reserves are also sending signals to the broader financial services community that 'green is good'. In 2022, more than 4,600 institutional investors backed a?UN-supported set of Principles for Responsible Investment (PRI) which was launched by the late U.N. Secretary General Kofi Annan in April 2006. The PRI members include the world’s largest asset owners and managers representing an estimated US$ 120 trillion in assets and ESG-thinking underpins these principles.

Gregory also indicted that the Financial Conduct Authority (FCA) published a consultation paper in October 2022 which is focussed on introducing new rules around sustainable investment labels, disclosure requirements and restrictions on the use of sustainability-related terms in product naming and marketing. Hence, the use of such terms in communication with the public need to be supported by sufficient evidence to back up the green credentials that are being claimed because?the ESG agenda is here to stay and will have a major impact on firms’ reputations and bottom lines, going forward.?

Lysis Group is a leading Governance and Compliance professional services firm which offers ESG services such as Health Checks, Framework design and implementation, Policy and procedure writing and Client Lifecycle Management operational services to support execution against those frameworks.?