Saturday, March 7, 2009

ESG Integration…If not now, when?

Don Reed from Sustainable Finance was in Toronto recently to talk about the risks and opportunities for businesses around sustainability issues. It was refreshing to listen to someone who is not interested in either denial or greenwashing, but takes a practical approach to helping companies address the challenges they face today. Sustainable Finance is now owned by PricewaterhouseCoopers who sponsored the presentation.

In the SRI world integrating ESG factors into investment analysis is a given. But for a firm just dipping their toes in these waters, how would they start? Mr. Reed suggests that they choose highly affected sectors and then work through some scenarios around material financial issues such as the physical effects of climate change, and the regulatory impacts. Having gone through this process with traditional asset managers he reports that they are often surprised to find that there are indeed material financial issues, and that companies within a sector may be quite differently positioned.

Recognizing that ESG factors incorporate a long term view of sustainable development trends and are not just a flavour of the month has also broadened the appeal of ESG/SRI analysis. For example, policy or business decisions that use the price of oil don’t price oil at $147 a barrel where it was last July, nor do they use the $45 a barrel it stands at today, a mere 8 months later. Models use average prices as well as extremes, and also include factors like volatility. When the business and investment community starts talking about the price of carbon, we can use this same type of thinking.

ESG issues are not irrelevant, nor are they somehow outside the parameters of business considerations. President Obama has stated, "But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. And to support that innovation, we will invest $15 billion a year to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America."

Corporations, and the financial services sector, need to understand ESG. And perhaps we are at a moment in time when traditional analysts and those who already integrate ESG into their work can come together to make decisions that benefit both the economy and the environment. Profitable and Green are not mutually exclusive.

No comments:

Post a Comment