ESG (Environmental, Social and Governance) has been a buzzword for quite some time among publicly traded companies who seek to both improve their image in the public’s eye and open new market opportunities.
However, over the last 12 months, increasing numbers of incidents and significant statements from governments, regulators and the wider investor communities have sent this new area for potential profit into something that all companies, private and public need to start addressing – and fast.
There are four key reasons why this ESG should be propelled to the top of any business’ agenda.
The war for talent is real
ESG – particularly within financial services - is immature as a sector. As such, finding employees with extensive experience in this field is nigh-on impossible; particularly since the ESG landscape and its regulatory requirements are constantly changing.
The small pool of ESG specialists is therefore highly sought-after – pushing salaries up higher every month. When top candidates enter this new market they’re receiving multiple offers, significant pay rises and often, the counter offer is dangled as businesses attempt to hold on to their expertise.
The regulation is coming – and there’s no hiding
Previously where only public companies in certain sectors have been bound by sustainability, environment and emission based regulations, financial services is becoming increasingly bound by regulations. The main reason for this – greenwashing. The principle of labelling an investment product as sustainable when the evidence doesn’t support that.
The Sustainable Finance Disclosure Regulation (SFDR) specifically lays down sustainability disclosure obligations for providers of financial products and financial advisers toward end-investors. A step in the right direction and when combined with EU taxonomy reforms – provides a strong start to limiting investment firms when selling sustainable products.
Investor pressures and the re-emergence of Stakeholder Capitalism
Since the turn of the century, ESG based stakeholder capitalism has really catapulted. Stakeholder capitalism is the belief that companies have an obligation that goes beyond simply providing returns for shareholders. It suggests that companies should be mindful of, and responsive to, their impact on society and the environment.
With both individual investors and now larger institutional bodies looking to push the issue, ESG-related investments will see huge amounts of investment over the coming years. This snowball effect has been significant over the past 3 years and with that regulatory pressure increasing – the ESG fund will be a more finite but more profitable venture for those who can conform to the standards.
Employee and internal stakeholder expectations have changed
By 2029, the Millennial and Gen Z generations will make up 72 percent of the world’s workforce, compared with 52 percent in 2019. It’s well known that these groups place greater importance on a company’s ethical stance than their predecessors do – and will expect more from employers on these issues.
It’s also no coincidence that the employers who rate most highly on employee satisfaction have significantly higher ESG scores than their peers. This pattern is partly due to these employers’ relatively strong environmental performance, though the trend is also evident across specific social and governance issues. This finding suggests that ESG performance can help companies both improve employee satisfaction and attract prospective employees.
The meteoric rise of social media, decentralised news outlets and increased use of online meetings and networking has enabled employees to have greater access to information around supply chains, charitable causes and affiliations of the companies which they represent. They also have a greater understanding the of the wider workings of the business, especially on social issues surrounding equality, diversity and employee rights.
If you would like to discuss building the right team to deliver your ESG strategy, please get in touch with Adam Bond, our Head of Financial Services recruitment, for a friendly chat.