Acting On And Embedding ESG Into Your Strategy

There’s no denying the fact that COVID-19 has changed the dynamics of the global economy.

With a vaccination looming in the horizon, many businesses and investors have shifted their focus from profits to people. Issues related to human equality, access to health services and societal welfare all topped the agenda in 2020. It quickly became evident that the environment and social issues have a deep and direct influence on economic stability.

As we enter the ‘new reality’ following the ongoing effects of COVID-19 to the global economy, ESG takes a leap forward becoming central to a new economic sustainability equation.

Meanwhile the carbon heavy industries plummeted (either shut down or reduced their operations.) Air quality improved dramatically as cars remained parked in the driveways.

All of the above and more have all raised the voice and pressure on the need for greater adoption of environmental, social and governance (ESG). As we enter the ‘new reality’ following the ongoing effects of COVID-19 to the global economy, ESG takes a leap forward becoming central to a new economic sustainability equation.

Whilst it is recognized that banks could face increased pressure to ensure they are able to earn a return on their investment whilst managing material risks impacted due to ESG factors, customers and the public are also increasing the heat as they choose their bank based on their ESG credentials.

The way forward

Many of the competitive banks are already testing and developing new products, services and models to enhance sustainable banking whilst wealth managers move towards ESG-informed investing to keep on top of public and regulatory expectations.

The introduction of carbon neutral banking, green home-improvement loans, and sustainable exchange-traded funds (ETFs) are examples of how firms are already adapting their strategies to meet ESG expectations. Capital markets move towards ‘green underwriting’ as customers of both commercial and retail banks have the option of a variety of ESG-linked funds, bonds and assets.

To move forward and remain ahead of public and regulatory expectations, the bottom line is that despite the challenges, banks must embrace ESG and make it a part of their strategy.

There are three key actions where we can help develop your ESG strategy:

• Develop capability While regulatory and supervisory authorities are exploring approaches as to how they might provide specific targets or expectations on HCM, banks need to create an understanding of common ESG expectations of key stakeholders and build awareness of ESG within teams across the firm. This can include delving into current practices and exposures, including an understanding of the data, the capabilities and the processes to monitor and manage ESG appropriately going forward.

• Keep it going as we are just getting started As ESG is evolving fast and new standards and regulatory frameworks are being deployed, learning and development teams need to put in place a holistic development strategy that starts at campus recruitment and extends to leadership development. This is much more than a quick fix knowledge gap training initiative, this is a transformation of how investors and market interact as they seek balance between social and financial returns.
• Human Capital Management in the spotlight How companies manage their employees, often referred to as human capital management (HCM), is increasingly seen by investors as material to long-term performance and risk mitigation. One study out of the London School of Business found that employee engagement and satisfaction directly correlate to company performance. Among the relevant information investors want to see are per employee training budgets, the skills, composition and engagement of the workforce, staff turnover and health and well-being standards. These KPIs or sustainalytics disclosures are being called upon and at Alpha Development, we can support you frame these standards.