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Between 2006 and 2020, the number of signatories to the United Nations-backed Principles of Responsible Investing (PRI) shot up from 63 to 3,038 and the combined value of the Assets Under Management of the PRI signatories has grown from $6.5 trillion to $103 trillion over the same period.
PRI, is the world’s leading proponent of responsible investment that works to understand the investment implications of ESG (Environment, Social and Governance) factors and supports its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
Even a decade ago, issues under ESG such as pollution, health or even insider trading were largely overseen by government regulations. But today’s investors have started to focus not just on the bottom-line or dividend pay-outs, but also on how their money is being put to use.
The moral ambiguity around ESG issues has long since gone. This is because even the combined value of technologies, product innovation, committed and skilled teams and access to unlimited capital that once defined success in a free market economy without any concern for ESG issues is not going to take us very far.
The conditions for sustained success have been redefined to make it more inclusive. But first look at the big numbers that is proving the fast-shifting priorities of businesses around the world.
The what and how
ESG covers a quite a lot in terms of what businesses can do to become more conscious of the larger ecosystem. The fundamental premise is that almost every decision has a cascading effect on this larger ecosystem we cohabit. For example, natural resources like water, energy etc. are more than just commodities that can be bought with money. These are shared resources and therefore must be used responsibly.
Similarly, the community, whether it is our customers and employees or families who live in the same neighbourhood where factories are located, should have a say in how we run our business. A polluting factory is everybody’s problem. Disruptions to business, caused by callous behaviour will ultimately affect all stakeholders, perhaps more tellingly the investors. ESG provides opportunities to address these issues.
Companies that take their ESG responsibilities seriously are actually helping themselves most by side-stepping frictions that are likely to disrupt and derail their growth. What we are seeing as investor activism is essentially an outcome of this. Today even religious bodies that invest their surplus cash in the stock market are held accountable for their portfolio.
Whether from a moral or economic standpoint, businesses, particularly the big ones are quickly coming to terms with these challenges. The growing number of MNCs hiring a Chief Sustainability Officer to oversee the ESG priorities is a sign of this trend.
The cement industry is taking its ESG responsibilities with great seriousness. According to Cement Sustainability Initiative (Now GCCA), a global consortium of over 100 cement manufacturers from 25-odd countries, the potential savings in CO2 emission from the sector by 2030 can be as much as 1 giga tonne a year or around a third of the annual CO2 emission of a country like India.
Investors are looking for quantifiable ESG outcomes. And, that is precisely where the top leadership team of a firm should be focusing on to meet the expectations of its stakeholders.
The writer is MD & CEO, ACC Ltd
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