ESG and the C-Suite

Nossa Capital
Nov 4 · 6 min read

Issue #6: A weekly update on responsible investment and business doing good

Harvard Business Review(HBR) released their CEO 100 this week. The ranking looks at objective performance measures across a chief executive’s entire tenure to create a list of the world’s top chief executives. In 2015 they began to include Environmental, Social and Governance (ESG) scores in their measurement. This year, the weight applied to ESG scores increased from 20% to 30% of the scoring criteria. This increase meant that Amazon CEO, Jeff Bezos, lost his spot on the list. Jensen Huang, CEO at NVIDIA was number one.

HBR comments on the analysis:

“For the past four years we’ve weighted ESG scores to account for 20% of each CEO’s final ranking. This year we tweaked the formula, increasing that share to 30%. The shift reflects the fact that a rapidly growing number of funds and individuals now focus on far more than bottom-line metrics when they make investment decisions. One sign of this changing sensibility: In August 2019, 181 U.S. CEOs who are members of the Business Roundtable signed a statement affirming that the purpose of a corporation is to serve not just shareholders but four other groups of stakeholders: employees, customers, suppliers, and communities.

The change in ESG weighting did create one casualty: Amazon CEO Jeff Bezos. On the basis of financial performance alone, Bezos has been the top CEO every year since 2014. However, he failed to make this year’s list owing to Amazon’s relatively low ESG scores. According to Sustainalytics, one of two ESG data firms that assist HBR with its ranking, those scores reflect risks created by working conditions and employment policies, data security, and antitrust issues.”

ESG concerns are not only important for CEOs, they are also of increasing concern for CFOs. In a segment from “Reinventing the CFO for the Digital Age” podcast by Mckinsey, Associate Partner Matt Stone comments on its significance for the CFO:

“Matt Stone: ESG is environmental, social, and governance investors. About $30 trillion of assets currently under management are being invested with these strategies in mind. It is huge. Investor relations is a traditional CFO subject, however, when you have an ESG investor push coming to your board and through to the executive team, it means that the CFO has to play a role in the sustainability strategy of the company. It’s not just something for the chief sustainability officer anymore. The CFO has to play a critical role there as well.”

Top stories this week

Untapped Opportunities: How is Impact Investing Poised to Grow?
The next generation wants to integrate sustainability into its investment decisions. “They expect to have sustainability options in their retirement plans that their employers offer them. They are three times more likely to choose their employer based on sustainability. They’re twice as likely to choose products based on sustainability. And they’re also twice as likely to boycott product, companies or investment strategies that don’t think about sustainability.” Durreen Shahnaz, founder and CEO of Singapore-based Impact Investment Exchange, comments in an interview with Wharton.

Beverage Companies Aim to Get Bottles Recycled, Not Trashed.
We have previously discussed how hotel chains are working to reduce single use plastic use. This week, some of the biggest beverage companies in the US: Coca-Cola, Pepsi and Keurig Dr Pepper have announced a $100 million investment aimed at improving recycling collection and processing. Alongside this investment, all three companies have made targets to increase the % of bottles they create by utilizing recycled plastic. Will this latest investment truly improve recycling rates and decrease single use plastic consumption? The results will remain to be seen. Read the full story in the New York Times.

Befuddled advisers face barrage of ESG questions from clients.
More and more advisers are being asked by clients about responsible investing. However, the industry still faces a significant education gap about how this type of investment works and if it will negatively impact performance. While the drive towards responsible investment products began by Northern European institutional asset owners, the retail investment opportunity is quickly starting to follow the institutional footsteps. Read the full story in Portfolio Adviser.

Latin American issuers face steep learning curve on ESG loans.
Latin American banks and corporations are turning to sustainable lending as a financing tool, however green and ESG lending remains in its infancy in LATAM. Issuers are actively seeking education and advice on sustainable finance. The region is under significant pressure to improve their sustainable financing practices after January’s Brumadinho dam collapse. Read the full story in Reuters.

Barclays creates new Sustainable and Impact Banking Group.
In yet another move of major financial institutions into sustainable investment, Barclay’s announced a new Sustainable and Impact banking group to be led by Brian Reilly. The newly created group is tasked at identifying growth clients that are solving global environmental and social challenges. The group will also be tasked at understanding the sustainable investment preferences of the banks clients.

Business Highlight of the Week:

This week’s business feature is Matsmart. Matsmart is a Swedish company that specializes in food waste reduction. The company which currently operates in Sweden and Finland purchases surplus production and overstock from companies like Unilever and Nestle and sells to consumers at discounted rates. The company recently raised a €17 million dollar investment from LeadX Capital Partners and intends to expand its operations in Germany and across Europe. Food waste constitutes a major problem worldwide as, each year, 1.3 billion tonnes of food is wasted along the value chain worldwide. The biggest cause of this waste is overproduction, non-compliance with industry standards and best-before dates.

Matsmart is not the only brand working to reduce food waste. Read our feature of: “5 start-ups that are working to reduce food waste.

Research Highlight of the Week

Impact Investing in Asia: Overcoming Barriers of Scale:
AVPN and GIIN collaborated with Oliver Wyman and Marsh & McLennan Insights to take a look at impact investing focused on China, India, Indonesia, Japan and the Philippines.

Affluence in Asia has been increasing rapidly as the industry is expected to be the third largest growth market of UHNWI between 2019–2023. However, with this growth there has been a widening wealth gap with unequal access to resources, socio-economic mobility and gender inequality. Many new enterprises are coming to market aimed at addressing these shortcomings but growth in impact investing in the reason is primarily burdened by these 5 key areas.

  1. Missing common language for impact
  2. Limited regulatory and structural foundation
  3. Reality perception gap
  4. Lack of efficient marketplace
  5. Nascent supporting ecosystem

Further differences in impact investing trends in Asia versus developed markets can be highlight in the differences in investor preferences across SDG goals in the regions.

Download full report here to learn more about challenges linked to impact investing in Asia.

Useful Tools

The Invest Your Values Search Tool was created by As You Sow, a nonprofit that promotes corporate social responsibility. The tool offer investors insight into the environmental and social impact of their portfolios, alongside traditional metrics like financial returns. Investors can search the name or symbol of mutual funds or ETFs in six search tools, which provide a “report card” on the fund related to deforestation free, fossil fuel free, guns free, tobacco free, weapons free or gender equality.

Try out the tool here.

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