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ESG might not last , but E , S and G aren ’ t going anywhere
The separate investment categories of environmental , social and governance are unlikely to go away regardless of what moniker they will collectively or separately fall under in the future , writes Virginie O ’ Shea , founder of Firebrand Research .
The ongoing industry debates about the ebbs and flows of environmental , social and governance ( ESG ) investing have led to a lot of interesting speculation about the future of the investment strategy over the last 12 months . But whatever the eventual outcome for ESG , there are many reasons why sustainability , diversity , governance and climate risk will remain important topics for the long term . I mean , have you seen the weather out there lately ? The industry focus on ESG isn ’ t just about investment trends , the impact of climate change on the environment is something that has permeated the consciousness of multiple generations . Governments have committed to targets and firms are on the hook for key changes to be made by set deadlines to address the rising temperatures . This year , we ’ ve seen record-breaking temperatures across many countries , which have resulted in floods , fires and droughts , to name just a few of the direct impacts to human life . Financial institutions and governments need to address the rising threat of climate risk as well as encourage positive movements toward sustainability . On the S front , diversity and inclusion topics have changed the way we evaluate the industry and the way we speak about ourselves and to each other . Whatever your views on these changes , you can ’ t deny they ’ ve happened ( albeit not in equal impact everywhere ). Much more transparency and accountability is being built into board and executive reporting and governance , bringing the G into focus . To this end , the Securities and Exchange Commission ( SEC ) and the European Securities and Markets Authority ( ESMA ) have both altered corporate governance regulation over the last couple of years to increase shareholder transparency and to increase voting participation , and more is yet to come as part of initiatives such as the Capital Markets Union . Moreover , the current and next generations of employees within banks , brokers and asset managers will have an even greater impact on the behaviour of capital markets firms as they climb their respective corporate ladders . Likewise , employees within the corporate sector will increase pressure on their firms to address diversity and sustainability , even those in the supposed anti-ESG , sin sector . The governance aspect of ESG is allimportant as a catalyst for change as firms will be held to account by both their employees and their shareholders . The post-pandemic great resignation has increased competition within the sector for talent , forcing many firms to re-evaluate their public image and their approach toward recruitment . Yes , some banks have gone back to an oldschool , work-from-the-office approach , but many have not and are pitching themselves as more socially aware and environmentally conscious in a bid to attract the younger generation . Many are also actively trying to reduce their carbon footprints by cutting down on international travel too . I ’ ll be chairing a debate on the topic of ESG at this year ’ s Sibos and I ’ ve spent a good part of the year conducting various exercises with clients about the various industry outcomes for ESG over the next 10 years . It should be a lively discussion as we touch on the impact of the next generation on ESG and beyond . But remember , even if ESG turns into E , S and G as separate investment categories or they change in moniker altogether , the drivers underlying their popularity are unlikely to go away . For any Sibos-goers : “ Green , clean , and ESG : Rewiring capital markets for a new generation of responsible investors ” is on Wednesday at 12pm CET .
74 Global Custodian Fall 2022