Environmental, Social and Corporate Governance(ESG), Global Trade and Investment

Over the past few years, ESG (Environmental, Social and Corporate Governance) has dominated the investment market, in the firm belief that a solid ESG proposition raises the value creation of a company. ESG is a vast and evolving topic. It includes urgent issues such as climate change, sustainability, gender and inclusion. ‘Building back better’ is not only a catchy slogan but has become imperative – even more so in a post-pandemic world.

A global survey undertaken in 2020 demonstrated that after banking institutions (62% ESG adoption rate), non-financial companies are second in implementing an ESG strategy, with 58% of the companies adopting an ESG policy, 18% intending to do so, 6% being on the fence, and only 20% stating that they are not interested.

That clearly shows the motivation of industries to partake in global transactions that are not only based on profit, but also on purpose. Value creation becomes more comprehensive, with clear benefits: a recent study indicated that demonstrable green economy practices attract B2B and B2C customers at top-level growth, where up to 80% of consumers would be willing to switch to a company that has adopted ESG policies and pay a higher price for sustainably produced, eco-friendly products.

Other benefits are cost reductions through sustainable practices such as lower energy and water consumption, zero waste policies and use of recycled or upcycled materials. Moreover, in times where talent retention and innovation are critical, a company that has sustainability and gender & inclusion embedded in their mission can attract and motivate top talent.

From an investor perspective, the focus has shifted significantly over the past decade. A study from 2018 showed that negative screening (sector exclusion) carried the highest AUM (asset under management) at USD19.8tn, however, with compounded annual growth of only 13%. The focus has shifted to Sustainability, where the AUM of USD1tn are significantly lower but have grown 65% over the previous four years and set to grow exponentially in the near future. The same accounts for Impact Investing, accounting for AUM of USD0.4tn in 2018, but with a projected growth rate of 45%.

Although these are very promising developments, the biggest challenge is to bring together the three areas of finance, development and trade, and find an intersection where the global trading system does not operate in silos. The pandemic has revealed the vulnerability of the global supply chain system. Nearshoring and reshoring are seen as potential solutions, however, that brings with it a unique set of challenges. Global supply chains are difficult to ‘unlink’, building up domestic production is very costly and time-consuming, and the business community needs to buy into it and be prepared to make the investment.

OCO Global, as a specialist in trade and investment, has worked on several initiatives related to supporting companies from multinationals (MNEs) to small- and medium-sized enterprises (SMEs) as well as government organizations such as the UK Department of International Trade and government-funded programmes such as the Commonwealth Fund in sustainability and global supply chain projects. In Brazil, we worked with MNEs, helping them to source more products or services from domestic suppliers by embedding Brazilian SMEs into their supply chains, which added not only to the resilience but also benefitted the development of a more diverse and local supply chain.

We have also done substantial Monitoring & Evaluation work for the Commonwealth Fund, supporting their Sustainability programmes, particularly focused on commonwealth island nations in the pacific and Caribbean. In the UK, OCO Global are currently working with DIT to deliver a research study which is intended to establish an evidence base regarding the direct and indirect impacts of FDI on carbon emissions and clean growth; and to better understand the contribution that DIT’s investment promotion activities can make to HMG’s environmental policies, clean growth strategies, and net-zero targets.

Which brings us full circle. In order to reach net-zero targets and increased parity in gender and inclusion, all sectors need to be willing to work together, embedding ESG commitments in companies of all sizes from top to bottom and also acting on them. What certainly gives hope is that a number of studies over the past few years have shown that companies with at least 30% of women on their boards are outperforming their peers in climate policy and transparency. OCO Global, with a broad range of experience in both sustainability and women economic empowerment, is a trusted partner for companies and government entities alike. With a wide network and in-house specialists, we can provide support in the design and implementation of projects. Please feel free to contact us if you would like to learn more.

By Barbara Gruenwald, OCO Senior PM Trade & Investment

 

Sources:

https://www.statista.com/statistics/1199562/investors-esg-policy-worldwide-by-organization-type/

https://www.mckinsey.com/business-functions/sustainability/our-insights/the-esg-premium-new-perspectives-on-value-and-performance

https://www.mckinsey.com/business-functions/sustainability/our-insights/the-esg-premium-new-perspectives-on-value-and-performance

https://www.igravity.net/blog/Gender-Lens-Investing-ESG-play-or-direct-impact

http://www3.weforum.org/docs/WEF_Net_Zero_Challenge_The_Supply_Chain_Opportunity_2021.pdf

BAB Webinar: ESG Performance, Excellence and Leadership

https://www.proactiveinvestors.co.uk/companies/news/935363/theres-a-correlation-between-female-leadership-and-esg-transparency-study-finds-935363.html