ESG Metrics are Standard Consideration for Investing
ESG performance is fast becoming a de-facto requirement to access corporate finance. Estimates put the percentage of fund managers utilizing some level of ESG performance in their due-diligence at up to 85%. The percentage of investment capital requiring an explicit level of ESG performance is around 35% and growing.
While the exact numbers may not be accurate, the trendlines are very clear. Over 65% of investors using ESG criteria have started doing so in the last five years. It is no longer being seen as an emerging niche. Consideration of ESG metrics in investing is now standard practice.
Despite what many will say, this doesn’t mean finance has changed at its core. Investors and Fund Managers are still laser-focused on returns and profit. That hasn’t changed.
What has changed is that the Path to Profit Has Changed. It now passes squarely through ESG and Sustainability.
ESG and Sustainability performance at the corporate level create competitive advantage at all levels, from market access to regulatory relationships to employee recruiting and retention to access to finance and more. Any business that chooses to miss out on these opportunities makes you wonder what other strategic opportunities they are missing.
While ESG and Sustainability requirements are critical for all sectors, they are even more important for Oil and Gas, Mining and other carbon intensive sectors with high capital requirements. Companies wanting to remain competitive for financing must learn to take a whole of company approach to sustainability. For many, this will require corporate-wide investment in skills development and training. Sustainability/CSR/CSI and other focused departments simply cannot deliver the performance that future success requires.
Training program participants will be far more effective in both the execution and the communications aspects of their responsibilities, and that the camaraderie and teambuilding will continue to pay dividends over time.
I believe the most impactful value is that they will be much more efficient at using Sustainability and ESG performance to deliver 360o of value. This is core to all our programs and is fundamental for carbon intense and extractive sector firms operating in the increasingly challenging 2020s and beyond.
As Sustainability and Climate Change continue to hold centre stage on the global agenda the financing, regulatory and other stakeholder challenges facing the oil and gas sector will continue to grow. The path to profit and sustainable competitive advantage passes squarely through sustainability. A company’s ability to cost-effectively deliver sustainability impact is an increasingly important success factor going forward.
Access to capital and cost of capital, especially for the oil and gas sector, is increasingly affected by sustainability impact, performance, and communication. With sustainability and climate change continuing to be top of the agenda for capital pools and fund managers, demonstrated ESG performance is a table stakes requirement for over 1/3rd of investment funds and a key consideration for over 85% of fund managers.
With many capital pools and funds explicitly moving to decarbonize their investments, oil and gas firms are in an increasingly competitive financing landscape, and the competitive dimension centers squarely on sustainability performance.
This demands a full court press from the Board to Field operations and across all sectors of the company. A firm’s CSR and Sustainability function are key, but so is the rest of the business.
To be successful going forward will not only require efficiency and effectiveness at turning exploration and operating investments into profits. It will require efficiency and effectiveness at turning sustainability investments and activities into demonstrated impact and results. This requires active understanding and engagement across all business functions and activities.
Sustainability is everyone’s business and everyone should have an understanding of how it works, why it is increasingly important and how it impacts sustainable competitive advantage.
The path to profit has truly shifted and companies that don’t get in front of the shift will face increasing risks and financing challenges.
ESG, Sustainability & CSR should be as much a business value driver as it is a social and environmental value driver. If it gets out of balance it creates risk and makes the sustainability and indeed, even the business itself, potentially less sustainable.
Business is about creating value. CSR, ESG and Sustainability are also about creating value; value for society, for environment and for shareholders.
Thanks for reading
Prof. Wayne Dunn
President & Founder