The rise of the Millennial generation means investment decision-making is now more than just about financial returns. A Thomson Reuters panel has offered 10 tips for building a robust Environmental, Social & Governance (ESG) policy in this social media age.
Millennial investors have grown up in a world where they are bombarded on a daily basis with information about the impact companies have on the world.
It is this self-made, entrepreneurial and tech-savvy generation that is changing the way investors think, and where investments are made.
They make economic and social choices, taking into consideration the consequences of pollution, social injustice, and ensuring the choices they make favor the rule of law.
If not, it takes a Millennial a simple negative tweet about a particular company/investment to go viral, and it’s there, online, for the whole world to see.
This makes the need for transparent behaviors and sound ESG reporting more important than ever.
At a recent Thomson Reuters panel discussion on the topic of ESG Reporting, Thomas Ochensberger of the Asia office of global private equity firm CVC Capital Partners, highlighted the long-term financial and economic impact of making consumer and investor choices.
He said: “As a citizen of the earth, it affects everyone, climate change and environmental degradation is not something you can run away from.”
In the case of the Millennial generations, who will have money to invest as a result of inheritance, they are “usually more focused on environmental, social and governance issues,” Mr Ochensberger added.
Ownership of this new era of transparency requires corporates to operate with responsibility, especially with regulators placing pressure on businesses and senior managers to take the bold step of reporting on their ESG credentials.
They have to take the lead and be prepared to accept investor and consumer feedback.
Dr Jeanne Ng, Director of Group Sustainability at Hong Kong-based China Light & Power, pointed out that in the age of social media if you don’t build your own story and communicate it first then the internet may do it for you, and often not in the way you might want.
During the panel discussion, Dr Ng said it was a race against time to get your own story out. Failure to do so means exposing your company to potential reputational risk.
Companies have to ensure that over a long period of time they have taken into account all positive and negative consequences of their behavior. It is this level of transparency that often equates to sound business advantage.
Another panelist, Philippe Shah, head of Thomson Reuters Indices in Asia Pacific, added that companies which have been doing this the longest have the best story to tell.
He added: “If you look at investors, they like history, they do back tests, they do correlations.”
This one statement highlights that investors will do the right thing based on obvious moral reasons, but also, because it makes sound business sense.
If a company is doing the right thing, and is completely transparent, investor confidence will result in long term positive sentiment, and ultimately, benefit all shareholders and stakeholders.
With this in mind, the panelists listed the best practices in ESG reporting, and their subsequent business impacts, as:
- Aim to be a sustainably profitable business making the right choices on the environmental and social factors that affect the future health of your business.
- Weed out risks to your reputation in your supply chain, such as human slavery or human trafficking.
- Take a leadership position and report on your ESG metrics to show transparency to your customers and investors.
- Ensure that the tone-from-the-top promotes good conduct in the organization.
- Build and publish the story of your ESG performance before it is hijacked and published by others. Social media is fast. Be faster!
- Be proud to publish your ESG reports.
- View ESG as an opportunity for differentiating and better ranking with asset managers.
- View ESG as part of the investment process.
- Develop a consistent language in your organization about ESG, how/why it is part of risk management and Alpha generation.
- Create a history of your performance with regulators, customers and investors that builds confidence in long term investment.
Adopting a culture of good conduct, the right tone from the top and transparent reporting of ESG is not just a matter of corporate compliance and governance.
It’s also about creating a three dimensional picture of your organization and your people that will make you an attractive investment opportunity — and a company that people want to do business with.
It’s also about doing the right thing that will inspire both current and prospective investors, as well as asset managers, to make that sensible business decision to invest in your business, and at the same time, perhaps even make the world a better place.
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