Indranil Ghosh shares an article that expands the concept of ESG and asks if this is the way forward for the future of business.
Last week, Shelley Goldberg and I talked about ESG investing’s lack of impact. In Part II of this series, we focus on a model of partnership between investors, businesses, and governments working together as ‘Engaged Societal Guardians’—a paradigm for the ‘New ESG’. The Covid-19 crisis has put societal repair on a critical path to survival for all three groups creating an opportunity to fashion a new collaborative model borne out of enlightened self-interest.
Investors – A shift in focus?
Before the Covid-19 pandemic, climate change was the single biggest focus for ESG investors. However, the balance is now tilting towards the ‘social’ pillar since the pandemic has amplified pre-existing social problems that were blighting our societies. However, to amplify direct impact and exert greater control over their investees, ESG investors should also consider ramping up active engagement with large cap holdings, as well as deploying more capital to sustainable infrastructure, corporate credit, and smaller disruptive companies through private equity, venture capital, and crowdfunding.
On the active engagement front, asset manager Trium Capital targets companies in high emissions industries like oil and gas, utilities, and mining and works collaboratively to help them transition to higher growth, lower emission, ESG leaders. Some leading pension funds are also waking up to this trend by organizing collective action. The New York State Common Retirement Fund, the third largest US public pension fund, plays a leading role in Carbon Disclosure Project’s Carbon Action initiative of 304 investors representing US $22 trillion that lobbies for company action on emission reduction and energy efficiency.
Sustainable infrastructure offers a good fit for institutional investors like pension funds since they provide long-term, contracted cash flows to help with matching pension liabilities and offer an alternative to holding hydrocarbon assets which are at risk of becoming ‘stranded’ should tighter carbon emission regulations be introduced. Canadian Pension Plan Investment Board, for example, has formed a joint venture with Brazilian energy generator Vortarntim Energia to fund the development of Brazilian wind farms.
Key points include:
- Business – Addressing All Its Stakeholders
- Workforce: Retain and Repurpose
- Agility during economic crisis
Read the full article, The New ESG: Engaged Societal Guardians, on LinkedIn.