Many business students hear about sustainability in academic courses and public seminars. We all know of the buzzword ‘triple bottom line’ (environment, society, economy). But pinning down what this concept means, its practical impact in business, or the implementation process of a sustainability strategy that moves away from business-as-usual, is like catching water: you try, you try again, and you eventually let it go.
Actually though, sustainability is trickling down in many areas of professional services; it is just a matter of sitting down and identifying those high potential sectors and industries where stakeholders are taking concrete measures to improve environmental protection, human rights and corporate governance. Let me share with you some examples.
Environmental, Social & Governance (ESG) issues are certainly gaining traction in three core industries: consulting, asset management and corporate agendas.
ESG is emerging in the consulting world because consultants are responding to the new demand forces for more sustainability-related practices by the clients they assist. Management consulting firms and audit firms are increasingly staffing projects that specifically address the sustainability challenges that firms, banks and hedge funds need to manage. PwC, for example, has its very own Climate Change and Sustainability services and departments which tackle the trends in power and utility sectors. Similarly, proxy advisory firms such as ISS deliver responsible investment solutions and measure ESG risk for asset owners, asset managers, and hedge funds, now that institutional investors are not only trying to diversify their investment portfolios, but are also seeking to decarbonize their assets to reduce the carbon footprint of their investments.
Today, most managers recognize the ‘triple bottom line’ as a necessary condition to operate across global supply chains and generate long-term competitive advantage. Private companies and asset management firms are indeed developing new business models that leave business-as-usual behind and take advantage of innovative sustainable practices to increase profits. Walmart, for example, is restructuring its supply chain to increase the number of fisheries and processing plants in the Marine Stewardship Council’s (MSC) certification program. Tesla has also swiftly build a luxury brand image around sustainability by selling premium electric vehicles.
Impact investing (or investments made into companies with measurable and beneficial ESG impact as well as financial returns) is spreading in asset management. Private companies are improving ESG reporting practices to protect their reputation and to account for the long-term risks of sustainability-related factors. Asset management firms, such as Hermes Investment Management, use this information disclosed in company reports to price ESG risk; their pricing methodology is a tangible market product that differentiates them from competitors and delivers higher economic returns for the clients they advise. Overall, companies with better reporting standards are becoming attractive investment options for those investors accounting for the social cost of their portfolios.
Sustainability is redefining a majority share of economic transactions in consulting, asset management and corporate agendas. It is not a passing ship and it is here to stay.
Elena Bignami | CEMS Club London