ESG: A frame for analysis, risk + opportunity.
A conversation with Aniket Shah, Jefferies Global Head of Environmental, Social and Governance (ESG) and Sustainable Finance Strategy.
The ecosystem of business and finance is going through a paradigm shift on how consumers, investors, regulators, and companies must operate in today’s market — accelerated by a global pandemic, an awakening around social injustices in the United States and the impact of climate change on people’s daily lives.
Today, customers want to change how they behave, and how their consumption and economic activities reflect their concern for the way the world is going.
Investors are pushing companies for better performance on environmental and social outcomes, and inputs into their processes. And regulators are creating conditions for greater transparency for companies to share how they conduct business.
These conditions explain why ESG issues are front and center for brands thinking about their license to operate over the next generation, and how they keep their customers close and not run afoul of regulations. “Purpose Up: Doubling down in tough times” underscores how real and forceful these pressures are from so many parts of the ecosystem today.
This means several things for business leaders today.
Be clear to your stakeholders - and to yourself - about what ESG means to you.
ESG is a term that gets thrown around a lot for different use cases. For us at Jefferies, ESG is about analyzing financial material, environmental, social, and governance risks and opportunities. It is a broader frame of analysis in order to be a better business, a better investor.
Be attuned to what matters for your customers and investors.
It is essential that a company realizes the importance of focusing on the material issues for customers and investors alike. Give them the information they need to become a true partner of your company.
Ensure you are looking at the world from both a risk and opportunity perspective.
ESG should not just be about box-checking around risk — it’s about a deep understanding that what customers, regulators and investors care about is changing. This is what leads to opportunity spotting. Tesla is only the first, frankly, of many new companies that will be created over the next 50 years in order to solve sustainability problems at scale. Commercially minded people should keep that in mind when they are looking at this space.
Innovate around ESG for untapped opportunities.
There is going to be an explosion of new kinds of products that companies will need to create to satiate this demand around sustainability. One such example is electric vehicles (EV): The pace at which EVs are being adopted is faster than most analysts had expected. And it is changing how large businesses in the automotive sector are creating products to sell to their clients. This indicates ESG initiatives are not just about giving information and knowing what customers want. You have to innovate and then provide those actual products for people to buy. And this is why customer-facing businesses really are at the forefront of this whole sustainability effort.
Have a clear sense fo the regulatory space around ESG.
We also recommend watching where regulation is going — we are getting to the point now that it doesn’t matter what public sentiment is around ESG. It matters what the SEC thinks about ESG, what the Department of Labor, the European Commission, the Fed and the European Central Bank think about ESG. The major regulators and policy apparatuses of the world are now heavily involved in this discussion.
At Jefferies, we recently made materiality compulsory for our analysts. We came to realize as a firm that ESG issues do impact the value of a security, and of a company. Therefore, a good financial analyst should be incorporating an ESG analysis when they are looking at companies that they cover. They do impact the value of a company, and our analysts and our investment bankers need to be on top of these issues when advising companies and investors on what to do going forward.
This conversation originally appeared in the 2022 Purpose Up report. To read more about how and why to double down in tough times click on the report download link below.
