Insight January 2022

As Swedish speaking followers know, last year I produced a monthly newsletter where I shared and commented on sustainability news. This year I have, due to popular demand (😊), decided to write in English instead and to focus a little more on sharing good and inspirational examples on how companies and organisations have managed to transform to more sustainable practices.

During the last few weeks, I had the opportunity to talk to several investors about their expectations regarding sustainability in general and impact investment in particular. The people I have spoken to have an interest in sustainability and hence there is no surprise that they are generally skeptical towards large emitters and companies engaging in “harmful practices”, although I do get the impression that many asset managers feel it is wrong to automatically divest (meaning selling off) only to improve the scores of his or her portfolio. “That doesn’t make the world better”, they argue.

I also sensed a slight worry among investors that they are too dependent on data assembled by some of the rating companies. As an example, the sustainability score ascribed to a company based on data gathered from its annual report or from its website does not always give an accurate picture. This is particularly true for social sustainability, where there are only relatively few commonly used indicators. Sustainability reporting has certainly become more mainstream, and the regulatory framework is expanding, which makes it easier in some ways to get a fair valuation for companies with high aspirations. But my feeling from the talks that I had, is that it is still necessary for companies to go beyond KPIs on green house gases and the taxonomy, to also work with and communicate their purpose.

The investors that I have spoken to have also shown a great interest in the positive impact that a company can hold. By being relevant for stakeholders and not only shareholders, enterprises can be a part of the change that is necessary for the world to reach the goals we have committed to reach by 2030 – and there sems to be money floating in that direction! The Global Investors for Sustainable Development Alliance (which gathers leaders from some 30 major financial institutions and corporations), which I look at as one of the pathfinders in this field, defines these investments as (quote below slightly shortened):

Sustainable Development Investing (SDI) refers to deploying capital in ways that make a positive contribution to sustainable development, using the Sustainable Development Goals (SDGs) as a basis for measurement. […]The positive contribution of an investment should not be outweighed by negative impacts from the same investment over the life of this investment. Investors can strengthen their positive contribution through active ownership, such as engagement for more sustainability in companies, sectors and projects they invest in, as well through greater investment in developing countries.

Financial institutions, and the way investments are made, have undergone huge changes the last few years and I believe we can expect more. And this leads me to one letter and one speech, that I recently read.

Let me start by sharing a few thoughts on Larry Finks, CEO and Chair of the world’s largest asset manager BlackRock, recent letter – The power of Capitalism –  to CEOs of companies in which Blackrock invests.

Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success. […] Our conviction at BlackRock is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders.

You may have read some of his letters before and perhaps you find them long and fluffy. I would encourage you to read again. There is clearly something going on; capitalism is changing. Profit and shareholders will continue to be crucial, but other stakeholders and other values can no longer be overlooked. Being a part of this change, I believe, is to future proof your business. Or as Fink asks in his letter regarding climate transition: “As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?”

Let me continue with a few thoughts on Antonio Guterres (the Secretary General of the United Nations) priorities for 2022. He talks about a global fire that requires full mobilization of all countries. The fires he talks about are the Covid 19 pandemic, global finance, climate action, lawlessness in cyber space and – of course – peace and security. It is really about time that we act, argues, or urges, Guterres. With regard to financial flows, he specifically stresses the need for credit making institutions that “routinely ascribes poor credit rating to poor countries”, to be accountable and transparent. He talks about how the special drawing rights  are still, despite the IMF issuing new SDR last year, favoring rich countries and how we need to go beyond GDP as a measurement, to also assess vulnerability and climate risks.

Second, we must go into emergency mode to reform global finance.
Let’s tell it like it is: the global financial system is morally bankrupt. It favours the rich and punishes the poor. One of the main functions of the global financial system is to ensure stability, by supporting economies through financial shocks. Yet faced with precisely such a shock – a global pandemic – it has failed the Global South. -A. Guterres, SG of the United Nations

To me, his speech is yet another reminder of the need to speed up the transition towards more sustainable and more fair ways of running our economies and societies. I believe that the “Nordic model” has managed to do a lot of that, the question though, is how we – you and I – can contribute to improve the systems further, and to share good examples so that they make a difference for the planet?

Some of the companies that I have had the opportunity to work with belong to the category of companies that struggle with the challenges both Fink and Guterres raises. Making a difference is not necessarily easy, but even trying is rewarding. The coming months I hope to be able to share some thoughts and experiences on how they and others have gone about to try to increase – and measure- the impact of their business. Stay tuned.

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