Who Cares Wins

As COP28 UAE is underway, it would be a good idea to understand the background of the term Environmental, social, and corporate governance (ESG). The term ESG was first coined in the United Nations report Who cares wins : connecting financial markets to a changing world.

This report resulted from a joint effort of financial institutions, which United Nations Secretary-General Kofi Annan invited to develop guidelines and recommendations on integrating better environmental, social, and governance issues in asset management, securities brokerage services, and associated research functions.

The report was the result of a joint initiative of the following companies:

1. ABN AMRO Bank N.V.
2. Aviva
3. AXA
4. Banco do Brasil
5. Bank Sarasin-Robo (Asia) Limited
6. BNP Paribas
7. Calvert Research and Management
8. CNP Assurances
9. Credit Suisse
10. Deutsche Bank
11. Goldman Sachs
12. Janus Henderson Investors
13. HSBC
14. Innovest Portfolio Solutions
15. F&C Investment Trust (formerly ISIS Asset Management )
16. KLP Insurance
17. Morgan Stanley
18. Allianz Global Investors
19. UBS
20. Westpac

The Foundation: Global Compact Principles in Business

The report underscores the crucial link between ESG issues and investment decisions, emphasizing its role in supporting the implementation of Global Compact principles worldwide. Senior executives of financial institutions and Global Compact signatories expressed the need for such guidelines, leading to the formation of this initiative in response to Kofi Annan's invitation in 2004.

Stakeholder Collaboration and Commitment

Endorsed by financial institutions with a total of over USD 6 trillion in assets under management, the report emphasizes the integral role of managing ESG issues in a globalized, interconnected, and competitive business landscape. It asserts that adept management in these areas contributes to shareholder value and sustainable societal development.

Key Recommendations for a Sustainable Future

The report outlines comprehensive recommendations for various stakeholders:

The overall goals can be summarized as:

• Stronger and more resilient financial markets
• Contribution to sustainable development
• Awareness and mutual understanding of involved stakeholders
• Improved trust in financial institutions

1. Companies: Lead by implementing ESG principles, improving reporting, and prioritizing ESG issues.
2. Regulators/Stock Exchanges/Governments: Shape transparent legal frameworks, include ESG criteria in listing particulars, and establish consistent standards.
3. Analysts/Brokers: Integrate ESG factors creatively, expand the scope to emerging markets, and receive support from academic institutions.
4. Investors/Asset Managers: Explicitly request and reward ESG research, integrating these aspects into investment decisions.
5. Consultants/Advisers: Foster stable demand for ESG research, combining it with industry-level insights.
6. Accountants: Help develop standards for ESG reporting. Ensure ESG information is accurate and reliable.
7. Educators: Teach people about ESG issues. Help develop ESG-related skills.
8. NGOs: Provide objective ESG information to enhance transparency.
9. Pension Trustees: Consider ESG factors when selecting investment managers. Ensure pension funds invest in companies with good ESG performance.
10. Governments/Multilateral Agencies: Consider ESG issues in investment mandates, aligning with fiduciary obligations for sustainable development.

Implementation and Next Steps

The endorsing institutions committed to implementing these recommendations through individual and collaborative efforts. They plan to engage with accounting standard-setting bodies, regulatory organizations, and investor relations associations. Platforms like the United Nations Environment Programme Finance Initiative (UNEP FI) and the World Economic Forum will facilitate stakeholder dialogue.

Conclusion and Future Outlook

As the report suggested, all the stakeholders (from individuals to governments to large asset managers) have a role in ensuring sustainable investment practices across the globe.

We must move from just bottom-line thinking to a triple-bottom-line (TBL) mindset to build a sustainable future for our planet. TBL forces us to think about people, the planet, and profit at the same time:

1. People Bottom Line: Focus on social impact, encompassing fair labor practices, workplace diversity, and community engagement.
2. Planet Bottom Line: Address environmental impact, considering carbon footprint, water usage, and waste management through sustainable practices.
3. Profit Bottom Line: Evaluate financial performance, covering revenues, expenses, and profits, emphasizing growth, margins, and return on investment.

We have too many businesses worldwide with a short-term focus, thinking only about the following quarter's results; to build a sustainable future for the upcoming generations, long-termism is the need of the hour.

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