A news item in mid-January 2020 shook the corporate world. Larry Fink, CEO of BlackRock, the world’s largest investment firm, released his annual letter to CEOs headlined: 'A fundamental reshaping of finance'.
In that letter, and another directed to clients, the corporate leader with $7400bn in assets under management stated that sustainability will be his firm’s “new standard for investing”. More directly, said Mr Fink: “We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them."
This is just one example of a growing global movement in civil society and in business that is connected to formative actions taken by the UN. The UN Global Compact, started in 2000, is a policy platform for companies that are committed to sustainability and responsible business practices. It is the world’s largest voluntary corporate sustainability initiative with 7000 corporate signatories in 135 countries.
The Principles for Responsible Investment, an organisation and framework formed in 2005, studies the investment implications of ESG factors and promotes their adoption into business investment decisions.
In 2015, the UN’s Sustainable Development Goals (SDGs) were introduced, comprising 17 goals and 169 associated targets that formed “a plan of action for people, planet and prosperity”, and were adopted by every UN member state with a goal to achieve success by 2030.
To be successful in this 'decade of action', the SDGs require serious business engagement. Thankfully, the business world is responding but in ways that many people do not even realise. The Sustainable Stock Exchanges (SSE) initiative, for instance, provides a global platform for stock exchanges, investors, companies, regulators and policymakers to enhance ESG performance and encourage sustainable investment, including the financing of the UN’s SDGs. Today, the SSE counts more than 90% of stock exchanges worldwide as members, and corporate focus on sustainability is being normalised.
Importantly, this shift in corporate behaviour is being measured and publicised more than ever, as well. Organisations such as Refinitiv, Trucost, MSCI, ISS Corporate Solutions, CDP Worldwide, Sustainalytics and others are evaluating and rating thousands of companies across dozens of performance metrics to highlight excellent and poor performances.
ESG ratings have become increasingly important because investors, consumers and citizens want to know how companies are responding to environmental challenges, addressing risk, and performing in the greater human and planetary interest. Environment issues, social issues and corporate governance are now key performance indicators for businesses to stay competitive.
Gregg Wassmansdorf is senior managing director, consulting, at Newmark Knight Frank, a global real estate services firm. He is a member of the Site Selectors Guild. E-mail: firstname.lastname@example.org