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2021: ESG Front and Center

February 3, 2021

We will forever remember 2020 for its head-spinning convergence of huge challenges — from COVID-19 to the explosion of outrage over long-simmering societal conditions of racial, gender and income inequality. From increasingly uneven access to healthcare, to a worsening climate crisis that manifested itself in the past year’s number and intensity of hurricanes and wildfires, 2020 more fully exposed some of our biggest challenges.

All this and more set the stage for a historic 2020 U.S. election that yielded a transition of the administration and control of the Senate, albeit by a slim margin, that has called into question the new president’s ability to carry out his full policy agenda. But I believe there’s especially strong potential for progress on one of those agenda items: ESG-related policy. Early indications are rejoining the Paris Climate Agreement and multiple executive orders to tackle the climate crisis. That’s because, quite simply, it is time; the issues are pressuring the system regardless of political affiliation. And we’re seeing a convergence of two very strong forces.

In a Nov. 9 press release, Nigel Green, CEO of deVere Group stated, “Biden’s election victory is prompting environmental policy experts and others to predict a looming significant boost for environmental, social, and governance (ESG) investments as the incoming administration pursues climate change and other policies that will create a more favorable environment for sustainability.”

Green noted, both before and during the presidential campaign, Biden and U.S. Vice President Kamala Harris actively championed “values that have an inherent synergy with ESG-orientated investments,” including climate change, social justice, equality, diversity, human rights and corporate transparency and accountability.

He goes on to say that it’s “probable that U.S. rules surrounding ESG investing and corporate disclosures will now come into line with those of Europe. If the rules on ESG investing are matched and agreed upon, and an international standard and framework brought in, we can expect further institutional investment piling into the ESG sector.”

And in the midst of all that, there is growing momentum from another huge and influential stakeholder in the policy arena – the business and investment community. For some time now, we’ve seen a movement of business leaders calling on both the private and public sectors to embrace ESG priorities by tackling racial, educational and income inequality and climate change. The private sector has a major role to play in addressing these concerns. And while they’re traditionally thought of as mainly matters of public policy, there’s a whole new context here. More and more companies are viewing these as business and market issues, as well.

Increasingly, CEOs want to do better in these areas, and we’re seeing signs that the private sector is primed to put more energy into doing just that. Why? Because it’s becoming ever clearer that it’s better for business. Taking substantive steps to address these issues helps companies attract and retain better people. It helps them build loyalty with their customers, suppliers and business partners. And, at the end of the day, it helps them deliver better outcomes for their investors. According to the Morgan Stanley Institute for Sustainable Investing report, sustainable equity funds outperformed their traditional peers by a median of 3.9% in the first six months of 2020, weathering the unprecedented global shock triggered by COVID-19. In the 2019 boom they outperformed their traditional peers, too.

I believe we’re seeing a growing convergence between the private and public spheres on ESG issues that are growing in importance to many stakeholder groups. This summary of 2021 Virtual Davos Summit shares some of them. In that environment, here are some of the opportunities ahead of us this year:

  • For investors, revenue and earnings are still top of mind, but today so are things like supply chain resilience and climate change risks. The letter from BlackRock’s Larry Fink to business leaders calls for greater transparency on climate risk. Be proactive in communicating about these topics, too.
  • It’s also time to take a hard look at your reporting, as diversity, equity and inclusion and worker safety are being watched more and more closely.
  • And in light of all that’s happened over the past 12 months, consider publishing a special COVID‑focused report to tell your organization’s story, lessons learned and how you’ll apply them to your business going forward.
  • Looking forward to November 2021, here are some thoughts on how your organization can prepare for the 26th UN Conference of the Parties (COP26).

These are just a few suggestions. Our expert ESG counselors can help your organization set a strong strategy, plan actions to achieve your goals and help you connect more closely with your key audiences on these increasingly critical issues.