According to ROBECO, ESG means using Environmental, Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability. Once enough data has been acquired on these metrics, they can be integrated into the investment process when deciding what equities or bonds to buy.
Since 2020, ESG has become a hot button issue, the representatives of governments, businesses, and other organizations committed to support the objective of the Paris Agreement. It’s a call on the asset management industry to adopt minimum standards in support of those objectives to achieve the goals of the Paris Agreement.
A blended focus on climate and sustainable finance is the most notable change that was triggered by the recent issuance of the International Accounting Standards and EU directives.
ESG is fast becoming the lens through which investors — not to mention consumers, employees and other stakeholders — make decisions about how to spend their money and time.
CPA Canada Sustainability – ESG Framework Resources
Environmental
Greenhouse Gas Emissions
Waste & Pollution
Water Use
Land Use
Social
Workforce & Diversity
Safety Management
Customer Engagement
Communities
Governance
Structure & Oversight
Codes & Values
Transparency & Reporting
Cyber Risk & Systems
Why It Matters Now
Canadian Boards of Directors and CEOs need to take note that the federal banking regulator has recently put financial institutions on notice to prove they can be trusted to adequately adjust for the risks posed by climate change. If they don’t they will be mandated to keep more capital in their rainy-day funds. The federal regulator views that as appropriate and important because capital is no substitute for having risk management in place in the near term. The regulator adds that in the longer term, once that matures, they will move into the capital arena.
Therefore, the biggest financial institutions should heed the advice to confront climate change on their own terms and thus they be able to avoid onerous capital requirements. They need to apply the same strict standards to climate risk to small-business loans.
These financial institutions will in turn require Small and Medium Enterprise (SME) firms to apply robust risk management eventually to avoid onerous capital losses at all levels of business, promote good governance, effective performance/stewardship, and ethical business practices.
10 Questions Your Organization Should be Asking Now
The following questions were identified by Dambisa Moyo in his article in Harvard Business Review on January 10, 2022:
- Is ESG undermining your company’s competitiveness?
- Does driving the ESG agenda mean sacrificing company returns?
- How are you navigating ESG trade-offs?
- How does ESG change due diligence?
- Should you become a public benefit corporation?
- How should corporations address societal concerns such as racial equity?
- How do you develop a global approach to ESG?
- How do you build an ESG framework that is future-proofed for tomorrow’s economic realities?
- How do you vet company performance of ESG?
- How should corporations navigate the ever-changing landscape of ESG?
