ESG opportunities for growth will proliferate for asset managers in 2021

Social change often comes from a crisis, and it is undeniable that the COVID-19 pandemic has transformed stakeholder expectations of how companies should behave. Environmental, Social and Governance (ESG) principles have been pushed to the forefront of decision-making for investors and fund managers. Some firms may see this as a challenge, but our expert panel discussed how this can and should, be turned to a business’  advantage in our recent webinar, ‘The new opportunities of ESG’.

Today’s end investor puts ESG at the heart of decision making

The ESG landscape is ever-changing, but the transformation we have seen this year is exceptionally rapid. “We’ve seen some very profound societal shifts in 2020,” explained Matt Claxton, Global Head of Corporate Solutions at Apex Group, referencing the COVID-19 pandemic and several concurrent social justice movements.

Within this context, the average end investor, customer and employee is more politically, socially, and environmentally aware than ever before, and it is little wonder that this influences their investment decisions. “The end investor is much more interested in where their pension fund and where their savings ended up being allocated to,” described expert panelist Deborah Gilshan, an Independent Adviser in Investment Stewardship and ESG.

The demographic of an end investor has also changed. “There’s a generational and a gender shift in the wealth that’s being put into capital markets,” said Gilshan, “I think that will also shift expectations about institutional investors and what they do on behalf of the people who invest.”

“ESG is no longer a “nice to have”, summarised Andrew Pitts-Tucker, Managing Director at Apex ESG Ratings, “this is absolutely essential.”

Societal issues have been pushed to the top of the agenda

“One of the good things to have come out of COVID is that it has put societal issues in the boardroom,” stated Dineshi Ramesh, Director of Specialist Delivery at Board Intelligence.

“For quite a few years the “S” has been silent in ESG,” agreed Aleen Gulvanessian, Head of Boards and Governance at Eversheds Sutherland. Companies and stakeholders have long been aware of their environmental impact and the financial opportunities and risks associated with it but, for many, this was the extent of their ESG integration. Now, Gulvanessian added, “the “S” is firmly on the map.”

Companies with an existing societal focus, or those that have quickly developed one, have seen great success in 2020. “The clever companies shifted their direction in advertising from being about their product to being, first and foremost, about care of people, of society,” said Gulvanessian. “Anyone who just concentrated on profit at that time would have been pilloried.”

Use data to drive action

Data has, for some time, been one of the biggest challenges to ESG integration, made up of questions around what data is needed, how it can be sourced and how it can be used. But Pitts-Tucker shared his view that we are reaching a turning point, stating, “we’re starting to enter an age of consolidation where there has previously been complication.”

“The primary question we get asked,” he said, “is how can we turn that data into positive action?” In answer, he continued, “Transparency is step number one here. If you’re collecting that data, then you can start to put an action plan in place to disrupt or go out and create positive action.”

Approach reporting as an opportunity

Our panel discussed the implications of Section 172 of the Companies Act in some detail. While this is not new legislation, there is a new requirement as of January 2019 for companies to report on their community and environmental impact.

Instead of treating this with apprehension, Gulvanessian urged that “if people can really apply those Section 172 factors to their business in an imaginative way and tell their story, it’s a great PR document.2

Make ESG universal

Far from being something that is led by, or exclusive to, the board, ESG should be a concern for every employee, and our panel had several useful ideas to make this happen.

“I think there’s a real place for employees on boards,” suggested Gulvanessian. “It’s definitely a two-way conversation,” Pitts-Tucker agreed. Gilshan also highlighted the importance of leadership by example, proposing that “the CEO has a huge role to play in connecting to the wider workforce.” 

“Keep it simple but make it pervasive,” advised Ramesh. She suggested that businesses” land on five things that are really important to achieve” that can be communicated strongly, enforced thoroughly and monitored closely. “It is more powerful than having 50 things that only ten people monitor,” she added.

ESG will be central to success in 2021

No one can deny that the next year will be a very difficult time for many businesses. “A lot of boards are shaping their agenda for 2021 and are prioritising ESG, but also survival,” said Ramesh. 

Fortunately, our panel had numerous valuable suggestions to take advantage of the opportunities of ESG and use this to drive not only value preservation, but progress to help economics build back stronger

Take the lead and collaborate

Ramesh highlighted that to adapt to the transformation in our society, companies will need to consider a radically different way of working. “Some of the problems that need to be solved cannot be done by one company alone. You need to collaborate with your community, with society, with competitors, and with the blessing of your investors.”

Ramesh also shared the idea of ‘growing the pie’, credited to Professor Alex Edmans of the London Business School. “Rather than imagining that there is a finite amount of value that we can create in a certain sector or market, actually grow that pie, so that even though your slice of it might shrink (because your business needs to contract), the opportunity has increased.”

“It’s the people who put their hands up and say, “we’re going to drive this, do you want to join in?” that are going to prevail,” she concluded.

Talk to us about ESG

 If your business needs assistance responding to the increased reporting requirements of ESG or wants to use data to disrupt and drive change, Apex Group can help. The enhanced insights offered by our pioneering ESG Ratings and Advisory services can help you understand and improve the performance of your business, align with international standards and create positive action.

With 45 offices around the world, our global team offers a comprehensive range of services to asset managers, capital markets, corporates, private clients and family offices. To learn more, contact us today.