The pressure on companies to report on their ESG performance and progress is constantly growing – from multiple sides. But why is that the case? We highlight the two global macrotrends that drive ESG topics into the corporate sphere: global inequality and climate change.
The macrotrends behind ESG: inequality and climate change
Name the two most dominant political topics in developed countries of the last 10 years. Chances are you’ll name exactly those two: mass migration and climate change. While it’s true that the globalized economy of the last decades has brought many perks and benefits for people worldwide, the growing overall prosperity came not without trade-offs. Most notably, inequality as much between different countries as inside societies themselves has been seen as on the rise, leading to more migration pressure and a rise of populist movements worldwide. Also, as economies around the world grew, so did their negative impact on the environment, with biodiversity suffering and CO2-Levels constantly rising, leading to global warming.
Why is everyone starting to act NOW?
For years and decades NGOs and IGOs have been warning about those two trends – but only recently, in the last decade or so, have their stances been adopted by wide spectrums of western society. The most obvious catalyst being the Fridays for Future protests, where young people all over the world express their concern over an unstoppable climate catastrophe if politics and the economy don’t change their way of doing business soon.
How does this affect my company?
All those protests are influencing the public opinion, so politics are starting to formulate laws that are supposed to stop the macrotrends of social inequality and global warming. For companies, this can have very direct consequences, as – for example – the price tags for carbon emissions rise. But perhaps even more than by direct laws, companies are influenced by indirect influences. And they are pressured from where it hurts the most: from where the money comes from.
Asset Managers worldwide and on every level are increasingly pressurized by governments and the asset owners whose money they are handling to make ESG criteria a bigger part of their investment decisions. Teacher pension fonds, for example, that are supposed to maintain their asset value over long periods of time (from the start a teacher starts their job until the start of their pension, say), are very interested in a functioning society and still-livable environment many decades in the future.
And what do the Asset Managers do?
The Asset managers can’t just go ahead and just claim that their investments are “green” or “sustainable” – the times of utter greenwashing are over. More than ever asset managers feel the pressure to base their claims for good ESG investments on hard facts. And how do they go about that? They put the pressure on the companies: ESG reporting standards are being established to make ESG efforts comparable across companies in specific sectors. This way, asset managers are analyzing companies for the non-financial risks they are or might be exposed to. If you show little ESG effort, more and more asset managers will ignore you – or pressurize you actively if they’re already invested in your company.
This is why it’s more important than ever to not fall behind when it comes to nonfinancial information.
Click [HERE] to see how cometis can help bring your ESG reporting to the next level.