Think green and let your business become more sustainable
Environment consciousness has become a major non-financial factor for businesses over the past few decades. The term ‘ESG’ entailing environmental, social and governance factors, is employed to weigh how far companies have progressed and will be progressing in the future on all these determinants of their sustainability. The score of their sustainability does play a vital role for the investors in the process of their investment screening.
While the other two determinants, social and governance of companies’ sustainability are no way to be assumed less important, environment is of the essence. Environment factor has been able to gain more traction in the business world due to the mass awareness of climate change and global warming. Environment factor does not affect the businesses only but also our society, country as well as the world at large. The number of business industries that are being affected directly or indirectly by the consequences of climate change, is rising briskly. Such rapid environmental changes have been worrying many established businesses in the market along with the small ones. It has been found in a study that the U.S. along could lose USD 520 billion across 22 sectors due to global temperature rise.
The concern as regards climate change and global warming has become a key factor for investors. In less than two decades, ever since the United Nations Environment Programme (UNEP) published a report ‘A legal framework for the integration of environmental, social and governance issues into institutional investment’, in the year of 2005, ESG investing which is also known as socially responsible investing has evolved into a USD 35 trillion industry. According to the money managers who oversee one third of the total U.S. assets under their management, assets managed in portfolios labelled ‘ESG’ are expected to reach USD 53 trillion by 2025. (Bloomberg Intelligence, ESG assets may hit USD 53 trillion by 2025, a third of global AUM, published on: 23 February 2021)
The above figures manifestly show the growing desire of the investors to create a positive impact on the society, country and the world at large through their investments. These figures also reveal an exponential sense of ethics and fiduciary responsibility amongst the investors.
Such inclination of the investors obliges businesses to score well in ESG rating. A systematic and long-term plan can help them score well. It will also help them to see where they stand in the market in comparison with their peers as regards sustainability of their businesses.
Businesses may opt for a ‘Green Blueprint’ that will be premised upon ‘zero tolerance’ against any business activity that is detrimental to our environment, and will entail the below:
a) compliance with the national and international laws and regulations relating to environmental issues (different measures have been taken at the national, regional and international level to tackle climate crisis, such as the European Parliament has recently voted to set a 2035 deadline for zero-emissions cars and vans which is being seen by many as a huge step forward for climate action, air quality and the affordability of electric vehicles. Green group Transport & Environment called on EU environment ministers to confirm the effective end date for sales of new combustion engines when they meet on 28 June 2022. (Transport & Environment, EU Parliament backs 2035 end date for combustion engine cars, published on 8 June 2022));
b) creating consumer awareness of climate change and global warming which would drag the consumers towards green products (a McKinsey research shows that more than 70 percent of customers would pay an addition 5 percent for a green product if they were satisfied that it met the same standards as a non-green alternative);
c) low-carbon business strategy;
d) less dependency on the natural resources than its peers;
e) having apt financial arrangements to deal with rising costs which ensued from climate change.
The proposed ‘Green Blueprint’ can help businesses become more sustainable and be well-ahead than its peers in the market.
Research & Legal Analyst