Innovation

Should improved sustainability performance and CEO compensation be linked?

For the longest time, corporate sustainability targets have been great PR, but minimal action ensued. One of the big reasons for this was that the sustainability targets were solely the sustainability department’s domain and didn’t span across all operations. This is now changing.

Boards that believe in the operationalisation of ESG, incentives and executive pay need to be the catalyst. Including incentives based on ESG is a strong signal and can trigger the cultural change that embeds sustainability into the organisation.

Innovation

When it comes to ESG, Shareholders want more..

Companies are announcing targets for net-zero carbon emissions across their entire product and customer base.

The reasons for this are clear, simple targets, and intent statements are not enough. Investors are aware that the climate crisis is here now and unless cutting emissions is done quickly, climate risks will rise exponentially. A 2050 horizon is one that is way too far.

Action for the 2030 timeline is what is urgently needed. Secondly, reducing emissions needs business model transformation and deeper insights into second-order effects—the people you buy from and the people you supply to also need to be considered. To restore the climate and have a safe future, we need to maximise mitigation, adaptation and removals. The financial system is the glue that holds everything together and for it to stand up and be counted, it needs to go beyond intent and first-order effects.

Innovation

Luxury's newfound love of ESG, a flash in the pan or a long term trend?

The fashion industry is responsible for 10 % of annual global carbon emissions, more than all international flights and maritime shipping combined. The fashion industry is under colossal consumer and regulatory pressure to clean up the negative impacts of fashion. The clean up won’t happen by good intentions alone; it needs a considerable infusion of funds for new, less harmful technologies and a reworking of processes. The movement towards this has already started with leading fashion brands investing in this sustainability led transformation.

The road to sustainability in the fashion sector is long and arduous. The funds that are being raised are a mere fraction of what is actually needed given the size and scope of the fashion sector. 2021 is likely to see fashion recovering from the aftermath of the pandemic, but more than ever, the focus on a green recovery is expected to be paramount.

Innovation

Who cares about Brand Purpose?

The pandemic has impacted most sectors’ corporate profitability, worsened social inequality and overall highlighted the urgency of tackling climate change. Corporate speak today is littered with well-meaning words designed to motivate employees and highlight to customers that the corporation exists for more than just profit. While most corporations’ mission and vision define what they wished to achieve in the long term, the brand purpose has been attributed to various corporate brands within a single corporations portfolio. Brand purpose has also become a way of aligning to various social initiatives and advertising this.

A significant purpose should manifest itself in everything a brand does: from product development to customer experience, to how it should conduct its marketing. While the profit motive takes primacy for most in the immediate future, the organisation’s licence to exist will take precedence in the long game. Working towards the common good has to be the defining metaphor of our times. For this, we don’t just need big words but action that build trust, transparency and believability at scale.

Words matter, but actions define who you are!

Innovation

Natural capital investments and the opportunity to engage the USD 120 trillion investment management industry

A growing number of private sector investors are factoring environmental concerns into their investment decisions. This is likely to grow even further.

The focus has primarily been on the greenhouse gas emissions in the past, but now natural assets such as water, soil, air and living organisms are in focus. Some examples are:

  • Using carbon credits to generate revenue streams for forests
  • Bonds for Preventing deforestation
  • Debt-for-nature conversion to protect oceans
  • Protecting coastal assets through insurance
  • Investing in sustainable sectors
  • Water funds for Freshwater protection
  • Sustainability targets linked loans
  • Impact funds
  • Innovative solutions such as creating the market to trade in stormwater credits to prevent urban flooding

Innovation

Measuring the S in ESG

Child labour, diversity in the workplace, health and safety of employees – all these and more are part of the “Social” parameters that ESG seeks to cover.

It has been proved again and again that transgressions in the social arena are penalised heavily by the markets. Studies have accurately shown that high social standards can reduce a company‘s systematic risk.

Innovation

Measuring business impacts on nature

About $44 trillion of economic value generation – more than half the world’s GDP – is moderately or highly dependent on nature and its services. Land transformation for agricultural commodities production is a key driver of impacts on nature. However, changing land use transforms the ecosystem and impacts biodiversity.

Even though biodiversity and impact on nature are context-dependent (region, resources, types), regeneration of natural resources and prevention of biodiversity loss must be factored into business value chains.

A simple way of looking at things could be to measure

  • The land area needed
  • The species of plants, animals and insects lost when the land is transformed
  • How the lost species will impact things locally and their impact on global systems

Innovation

The top 5 implications of net-zero

I

n 2020, net-zero pledges fell thick and fast from policymakers and businesses alike. In 2021, those ambitious words need to be turned into concrete actions. What are the implications of this Net-zero transition:

  • While factories will shift to renewable energy, so will offices and stores.
  • The shift away from plastic will mean that new bio-degradable materials will hold sway.
  • At the same time, reverse supply chains that enable reuse and recycling of bottles, packaging and containers will emerge stronger. Post-consumer waste will be the responsibility of the company. While EPR is currently enabled by legislation in some countries including India, consumer awareness is currently limited. This is likely to change
  • For consumers, environmentally friendly lifestyles will become the new theme. This will emerge in almost every category – packaged food, fruit and vegetables, drinks, cosmetics, home care, personal care
  • Necessitated by the cost of managing reverse supply chains and inspired by consumer demands products will be radically redesigned – natural, local, environmentally friendly themes will be prominent.

Innovation

Creating net-zero portfolios

It has been assumed that there are only three ways for decarbonising your portfolio:

  • Divestment from high-carbon industries, such as oil, mining
  • Working with companies to adopt carbon mitigation plans
  • Offsetting emissions

But, funds can do far more than all this when making new investments. A coalition of 70 funds representing assets of $16tn have designed a “net-zero” framework to remove carbon emissions across their portfolios by 2050. The framework provides a comprehensive set of recommended actions, metrics, and methodologies to enable both asset owners and managers to become “net-zero investors.” The framework identifies five core components of a net-zero investment strategy:

  • Governance and strategy
  • Objectives and targets
  • Sstrategic asset allocation
  • Asset class alignment
  • Policy advocacy
  • Market engagement.

It covers four asset classes:

  • Sovereign bonds
  • Listed equities
  • Corporate fixed income
  • Real estate

Innovation

The accelerating role of the Chief Sustainability Officer

As companies join the dots between environmental and social well-being and business resilience, the Chief Sustainability Officer’s role is changing.

  • Higher Standards – Expectations from the sustainability team have increased as companies now demand higher health, safety and sustainability standards.
  • Strategy + Risk – Sustainability is increasingly expected to be part of core strategy and risk mitigation, and the CSO is now expected to be aligned to both strategy and risk teams.
  • ESG Reporting –The CSO’s work now matters even more to the CEO and CFO with increased ESG reporting. Further, there is increasing pressure from the financial world to link economic and business performance with sustainability targets to calculate executive pay.