Investors and businesses—our best chance to avert climate change?

The recent IPCC report drove home the urgency of taking action to prevent the worst impacts of climate change from happening. Will the finance and business sectors, who have the ability to act faster and more efficiently than public institutions, step up?

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Investors are considering pursuing ESG integration in their existing portfolio and future investment opportunities. Image: Rawpixel, Pixabay

Over the last decade climate change has become a topic that affects everybody. However, the recent report from UN Intergovernmental Panel on Climate Change (IPCC) has highlighted that the world’s governments are “nowhere near on track” to meet their commitments to avoid global warming. This can have catastrophic results with loss of arctic sea in the summer accelerating intense heatwaves, floods, droughts and ocean acidification. So how can we start to address this?

Financial sector as a strategic driver for change

Given a failure of government to effectively tackle the issues, it is increasingly apparent that addressing climate change has to involve individuals, businesses and investors worldwide. While individual action and lobbying is effective, we believe that the financial sector has a significant role to play as a strategic driver for change, by engaging their invested companies to take greater actions on their environmental impacts.

The scale of the transition required is huge, but it also brings new opportunities. The influential report of 2018 from the New Climate Economy estimated that the world would gain $26 trillion of economic benefits from transitioning to a low-carbon, sustainable growth path.

Set against the current backdrop, many investors have already started to recognise these benefits and are considering pursuing environmental, social and governance (ESG) integration in their existing portfolio and future investment opportunities.

This is because ESG issues, such as climate change and human rights, can affect the performance and reputation of a company and should be considered alongside more traditional financial factors. Large institutional investors such as pension and mutual funds are also reacting to pressure from their members to act in an ethical and climate aware manner. The question is no longer “why” sustainability factors are important, but “how” to efficiently implement sustainability metrics into their strategy.

Alignment with SDGs

Unfortunately, to date we still see little evidence of integrated reporting targeted at investor audiences. Both during the due diligence process and then post finance, reporting often does not include data that is most material to investors from a sustainability perspective. 

However, one approach could be to align with the UN’s Sustainable Development Goals (SDGs), which are the collection of 17 goals with their 169 targets set by the United Nations to drive sustainable development and fight poverty. The SDGs present a way for investors to address specific areas of global sustainability and human values. They also create a roadmap for sustainability reporting within their portfolio accounts.

It is our belief that companies can gain significant new business opportunities connected to the SDGs. As an example, Goal 3 addresses health and well-being and businesses clearly need a healthy workforce. Goal 5 looks at gender equality and there are numerous examples of companies that perform better when the gender mix is improved.

And when it comes to climate risk, a company’s whole supply chain could be challenged if it has suppliers in regions facing severe water shortages or adversely high flooding risk, impacting both the cost and availability of product or raw materials.

Using technology to drive change

Given the growing necessity to enhance the link between ESG factors and financial performance, we see a clear need for practical and analytical tools that can help investors and their portfolio companies to implement, measure and report their sustainability Key Performance Indicators (KPIs). But to do this ESG data needs to be:

  • Collected, monitored and reported in efficient, transparent ways
  • Easy and cost-effective to collect
  • Provided in a comparative language comparable to past performance, competitors, best practice or new market development.
  • Based on verification standard to adhere towards (SDGs, GRI, CDP, etc.)

The company I run, Turnkey Group, is a sustainability software provider listed by United Nations Principles for Responsible Investment. We have been working within the investment sector and their portfolio companies over the last three years and see increasing demands for sustainability reporting. 

The question is no longer “why” sustainability factors are important, but “how” to efficiently implement sustainability metrics into their strategy.

Our sustainability platform and analytical tools allows investors to track and compare the performance of their portfolio accounts and for those companies to monitor their internal ESG data and drive improvement. The company also supports investors during the ESG due diligence process which allows actions to be taken much sooner and embedded into the investment discussion.

Monitoring sustainability impact across the entire supply chain allows investors to mitigate reputational risk. The trap that many investors fall into is ignoring what could happen if they do not have transparency of their sustainability performance.  For example, what if a portfolio company does not take sufficient measures around human rights in their supply chain or if inefficient operations of a manufacturing plant led to water scarcity in the area? In recent years, we have witnessed many companies facing critical consequences due to reputational scandals linked to their environmental or social performance.

In conclusion, there’s one key takeaway from the recent IPCC report: We need to act immediately to cut as much carbon pollution as possible, as fast as possible.

Investors, financial institutions and businesses have the ability to act faster and more efficiently than public institutions and can therefore be a catalyst to make change happen. They also stand to significantly benefit from taking up carbon mitigation actions with well-defined and measured sustainability targets acting as profit centres for their business.  

Using technology tools can make this process more efficient and beneficial not just for carbon mitigation purpose, but also for the triple bottom line of your business.

Tony Wines is the CEO and Founder of Turnkey Group. 

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