For companies to survive and even thrive beyond the coronavirus pandemic, they’re going to have think more like the millennial generation.
This is an influential demographic that increasingly is holding big companies to account when it comes to honesty, transparency and working for the common good of society.
The past few years have seen a significant increase in focus on sustainable, responsible and impact investment (SRI). SRI has forced companies to consider environmental, social and governance (ESG) criteria in their strategies and operations to generate long-term competitive financial returns and positive societal impact.
The mindset change is driven partly by millennial generation thinking, as well as evolving macro-economic trends, and none more so than right now, amid dire warnings from the International Monetary Fund that the global economy is expected to contract by 3 percent in 2020, experiencing its worst recession since the 1929 Great Depression, surpassing that seen during the global financial crisis a decade ago.
We also have to consider other fast-changing paradigms when it comes to investment strategy.
Changing demands, shifting strategies
The growth in global population will drive global demand for food, water and energy. That will accelerate the need for innovation in energy generation and distribution, improved health care, more efficient transportation, the need for access to education and other infrastructure.
All of this means a radical change in operational strategy for all businesses.
The ability of a company to maintain a strong financial performance coupled with a values-based approach is not only ethically attractive but fast becoming mandatory to forward-looking investors, especially Millennials, who are the principal future investors and consumers.
Numerous studies have shown that companies that focus on environmental, sustainability and governance (ESG) factors and integrate them in their strategies and operations eventually outperform those that don’t.
New data from the Risk Insights ESG GPS model has established that before and during the Covid-19 crisis, companies with higher ESG ratings outperformed their peers with lower ESG ratings.
Focusing on ESG factors enabled these forward-thinking companies to conserve water, energy and other natural resources in their operations, incentivised their boards and CEOs to focus on long term physical and financial sustainability while providing high-quality, diverse workplaces that has led to greater employee satisfaction, retention and productivity.
It is also evident that companies that focus on stakeholder wealth maximisation and not only shareholder wealth maximisation have built sustainable brands with sustainable revenues and profits. As ESG aspects have become a fundamental part of the strategies of companies, investors, shareholders, government and the public have demanded more accurate information on how to measure the ability of companies to leverage of these ESG factors resulting in the need for ESG ratings.
At the centre of standardising the ESG ratings should be transparency in how companies report ESG aspects in their sustainability and integrated reports which should reflect positive and negative aspects of the organization’s performance to enable a reasoned assessment of overall performance.
Reported information should be presented in a manner that enables stakeholders to analyse changes in the organisation’s performance over time; the reported information should be sufficiently accurate and detailed for stakeholders to assess the organisation’s performance, the organisation should make information available in a manner that is understandable and accessible to stakeholders using the report and the organisation should gather, record, compile, analyse and disclose information and processes used in the preparation of a report in a way that they can be subject to examination and that establishes the quality and materiality of the information.
Risk Insights is a risk management advisory and consultancy boutique. Dr Anushka Bogdanov has 26 years of international risk management experience. She also has a PhD in International Financial Management from the London Business School and Honours and Masters Degrees in Business Administration from Buckinghamshire University in London. Views expressed are her own.