Across the world, corporations have started to prioritise their environmental, social and governance (ESG) impact when deciding key policies and strategy. Those who do not, will be left behind.
ESG is growing in importance as millennials and even Generation Z start to have more influence in the workplace. Equally though, older generations are now rapidly recognising its value. One only needs to consider the devastating weather from the last month or the stark warnings from the IPCC report on 09 August 2021 (https://www.ipcc.ch/report/ar6/wg1/), and the urgent requirement of environmental policies is evident. Likewise, as people become better educated about social injustices, for instance those highlighted by the BLM movement, there will be an increased expectation from all generations that companies push for change.
Last week, the Financial Times reported that Fidelity International, a global asset manager, will vote against the re-election of directors if companies are making insufficient progress on board diversity or in their contribution towards the climate crisis. Fidelity has estimated that it could be voting against 1,300 companies for a lack of gender diversity and voting against up to 400 companies for failing to appropriately address climate change. BlackRock and General Investment Management, other large asset managers, are also now holding directors accountable for sub-standard ESG policies. Blackrock for example voted against more than 2,150 directors between June 2020 and June 2021 regarding issues of board diversity and global warming.
This means that aside from the more general social and environmental obligations, strong ESG policies are soon going to be commercially essential. Asset managers such as Fidelity are forcing companies' hands as above but so too are private investors. Cazenove, for example, have recently reported a significant increase in younger investors who explicitly demand that all investments must meet certain ESG standards, even at the expense of profit. It seems likely then that companies without clear and adhered to ESG policies will soon be unable to raise funds and will change leadership very quickly. In short, it will be difficult for them to continue operating effectively.
ESG policies need to be prioritised by all businesses and individuals but rather than viewing this as a threat, there should be an optimism that the growth of ESG awareness offers some direction in addressing many overwhelming global issues. Howard Kennedy continues to strive to assist our clients in determining and achieving their ESG goals from the legal perspective. Both the Real Estate and Corporate departments regularly advise on ESG projects whilst other teams continue to see an increase in ESG demands. We are well placed to assist with ESG related queries and contribute to achieving greater sustainability. Indeed, we embrace such positive steps.
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