The rise of ESG as the mega trend of the 2020s (with climate change risk at its peak)

It was a pleasure to speak this morning at Nasdaq Sydney Governance Forum on ESG Trends for 2020 - Impacts, Opportunities and Risks. The diverse perspectives of the panel members led to a really constructive discussion, which I highly valued. We brought together our thinking on ESG issues from an (a) issuer CoSec perspective, (b) issuer IR/Finance perspective, (c) ethical investing fund management perspective, and (d) third party ESG/board governance adviser perspective (including insights from North America and Europe). 

In terms of the discussion about ESG in 2020, some points included:

• mindset - companies that are more mature in their ESG journey will articulate ESG as a value creator rather than a value drag on opportunity.  In Byron Loflin's words, when we think about long term sustainability for organisations and ESG, our mindset’s ratio should be one of at least 60% opportunity and maximum 40% compliance. 
• prioritisation - ESG should be one of, if not the, highest of a Board's priorities in 2020.
• fiduciary duty - the consideration and management of ESG issues, and the impact of these issues on long term value creation for organisations, is inescapably a fiduciary duty for Directors. Directors must exercise due skill and care in considering, overseeing and managing ESG impact issues for their organisation.
• decade framing acronym - according to Morgan Stanley in February 2020, when we look back over recent decades from an investing perspective, each can broadly be defined by a prevailing acronym… TMT dominated the 1990s, BRICS encapsulated the growing importance of emerging markets in the 2000s, and FAANG was the buzz for technology and disruption more recently.  ESG is set to be the acronym that defines the 2020s.
• mega trend - with the focus on corporations being purpose led & stakeholder primacy, our panel agreed that ESG seems set to be a"mega trend". The momentum of this mega trend seems likely to continue to increase as societal trends drive changes in behaviour by consumers, corporates and investors, further aided by regulatory and governmental measures. ESG has definitely shifted out of its infancy and is now part of the mainstream investment landscape.
• climate change risk - with ESG predicated to be the governance mega trend of this decade, environmental impact is surely at the peak . A pressing issue for Australian corporates in the next 12-24 months will be their management of, and disclosure in respect of, climate change risk.
• impact & value - stakeholders nowadays are looking at the societal impact of the products or services that organisations are offering, and are looking for large corporates to seek to have a positive societal impact rather than just financial returns. Along with activist shareholders, employees are demanding their employers address business and ESG considerations side by side. 
• shareholder activism – the rise of ESG shareholder activism seen in 2018 and 2019 is set to continue in 2020.
• integration - ESG must become an integrated ESG part of an organisation's business & strategic planning (and ultimately its disclosure). ESG cannot be considered as something that is a bolt on speciality owned by an enablement function. It must be owned by the business. Best practice will lead to integrated reporting.
• disclosure - for corporates looking to report against the amended ASX Recommendation 7.4 "material exposure to environmental or social risks" in the ASX's Corporate Governance Council’s Corporate Governance Principles, the Governance Institute's recent climate change risk disclosure guide is commended to you as a good practical guide and Recommendations. Available at: https://web.governanceinstitute.com.au/advocacy/thought-leadership/climate-change-risk-disclosure/

Thanks again to the panel, but also all of the attendees, for their free sharing of ideas and constructive challenge!

My peer speakers were:

Byron Loflin - Nasdaq Center for Corporate Governance

James Hall - AGL Energy

Kerry Series - Inspire Impact

Guy Gilead - - Nasdaq Center for Corporate Governance

#ESG #sustainability #longtermvalue #climatechange #climate #governance #board #accountability