Edelman recently hosted the Skytop Strategies’ Summit on “Generating Alpha: ESG as a Core Driver of Institutional Portfolio Performance” in New York. The program addressed how companies are implementing Environmental, Social and Governance (ESG) practices to reshape how they create value, as well as how institutional investors are building sustainable portfolios using ESG factors as inputs.
I had the pleasure of moderating a panel discussion on ESG scoring and the role of social responsibility in creating company value with experts Herbert Blank, President of Quant Pioneers LLC; Kevin Eckerle, Director of Corporate Research & Engagement, NYU Stern Center for Sustainable Business; and William Jannace, Adjunct Professor at Fordham Law School.
As I recently discussed at Nasdaq #TradeTalks, ESG has become a key focus for investors. The 2018 Edelman Trust Barometer Special Report: Institutional Investors, surveying more than 500 global institutional investors, revealed that the “E” and the “S” now matter as much as the “G”. Companies are urgently obligated to take a stand on societal issues, and from the dialogues this week it’s clear that corporate citizenship is evolving into a long-term commitment that aligns philanthropic strategies with business goals.
Here are three takeaways from the discussion:
- ESG performance and the bottom line - Companies are now expected to track and report numerous data points. However, very few companies are taking steps to clearly show how ESG measures are affecting financial performance. ESG related actions can and should demonstrate the financial impact on the business. Companies should look at building models that tie ESG performance to the bottom line.
- Beyond ESG as an employee engagement strategy - We know that employees feel a greater sense of pride, commitment and dedication to a company with a clear sense of purpose. However, corporate philanthropic endeavors shouldn’t be treated as a box ticking exercise. Companies who invest in talent and training, for example, are preparing the workforce for the future of work and know this is not only good for their reputation, but for the economy and society as well.
- Fiduciary duty vs. ESG integration - Finding a balance between sustainable investing and an institutional investor’s fiduciary duty – generating the best possible returns – remains a constant conundrum. Given the broader macro-economic issues and risks facing us globally, investors should keep in mind the role ESG plays in building sustainable societies and consider ESG as something well beyond a risk factor.
Josh Hochberg is deputy general manager, Financial Communications and Capital Markets, New York.