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Corporations Are Ramping Up ESG Investments in 2021

·6 min read

As data continually shows consumers making their purchase decisions through the lens of brands that they feel align with their values as well as practice those values in society, boardrooms are increasingly focused on the impact of their environmental, social and corporate governance initiatives, known as “ESG”. While steadily building momentum over the past several years, the tumult of 2020 including the pandemic and widespread civil unrest and political division have brought ESG initiatives to the forefront of decision-making in the c-suite. Corporate responsibility has gained a seat at the table that sees its central involvement in key organizational decisions more than it ever has before.

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Consequently, as CEOs become more keenly focused on how their organization is using its platform to communicate and practice its values for a positive societal impact, it presents uncharted territory for many teams to bring a new level of clarity to a brand’s values, communicate those values effectively to its audience and then make sure the actions of the company are in alignment and making a difference. Whether it’s a focus on sustainability and reducing carbon footprint, ensuring equality in the workplace or developing new transparency practices for consumers, many Fortune 500 brands are turning to MJV Technology & Innovation, a global consulting firm as the architect for their ESG strategy. We spoke with MJV’s global CEO, Mauricio Vianna, to glean more insight into how the biggest companies are approaching ESG in 2021.

What is new about the perspective that companies have on ESG initiatives in 2021?

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Mauricio Vianna: Company investments in ESG grew by leaps and bounds in 2020, and we expect this trend to continue in 2021. Companies are now finding that ESG not only serves the public good, but it is also a smart financial investment for corporations. Morningstar’s sustainability rating system found that in the first quarter of 2020, funds that focused on ESG and had high ESG ratings, outperformed those with low ESG ratings, as well as the market as a whole.

As we move through 2021, these trends are expected to continue, boosted by growing global commitments to combating climate change, as well as the growing social pressure from consumers who want to know that the companies they support care about broader public well-being.

Is there greater demand from consumers that companies view operations through the lens of ESG considerations?

MV: Certainly, there is a much greater demand from consumers for companies to view operations through the lens of ESG in the past year. Various social factors have advanced these demands, including the broad recognition of the Black Lives Matter movement’s importance, and the disproportionate negative impacts the pandemic has had on vulnerable communities.

Companies that were more resilient and transparent with consumers and positioned themselves in front of these latent challenges the world faced in 2020 were the ones that better prospered. On the other hand, if they only take into account ESG policies because of investors' demands, they won't thrive in the long-term. The moment the global market lives now regarding ESG is one of rupture. Just like in the past we had, for example, the agrarian and the industrial revolution performing this role, now we see it happening with ESG. Sustainability terms will be the ones guiding the next generation of business models, and companies will have to adapt to it in order to survive, to be profitable.

At MJV Technology & Innovation we have seen an increase in demand from our clients in the financial, insurance, FMCG, and energy fields for projects that range from ESG Business/Cultural Transformation to creating new ESGs products for the market.

What is one of the areas within ESG that you believe will dominate this year?

MV: One of the biggest areas within ESG that will dominate this year is climate change. With America re-entering the Paris Agreement, the economic feasibility of clean energy technology, and growing pressure from investors, more and more companies are making commitments to lowering their carbon footprint. The whole world understands the urgency of tackling this challenge before it’s too late, and there is an obligation to act now in order to ensure a healthy global future.

In addition, we also believe that the three bottom line (environment, society, and economy) concept that is directly related to the ESG acronym will have an important relevance within companies. In practice, through the years, they all have advanced someway, but definitely, the environment was the main one. It has a strong impact when you talk about environmental issues in your operation, because it involves cost reduction, process optimization. So this will continue to grow, as ESG becomes a constant practice in companies.

How are banks and the investment community adapting to the heightened focus on ESG opportunities?

MV: Since BlackRock has repurposed itself having sustainability as a central part of its investment strategy, it has guided the market in a positive 'no return' path, demanding all kinds of companies to face the challenge of incorporating ESG policies into its business strategy.

Also with the ambitious targets of the Paris Agreement, investors and banks are having to adapt their portfolios, sometimes even eliminating investment in companies that don’t properly reduce their greenhouse emissions. Companies are moving to diversify their leadership, as evidenced by the 2021 S&P Global Corporate Sustainability Assessment including a question regarding the number of minority board members, and the Nasdaq proposing a rule requiring most of its over 2,500 companies to have at least one director that is female and another that is part of an underrepresented community.

At MJV Technology & Innovation, we are currently working with international banks to apply design thinking to help them customize their ESG funds and tailor them to the customer needs and interests.

What are some concrete examples of ESG initiatives that financial firms can adopt?

MV: There are many steps that financial firms can adopt to align with the future of ESG. First of all, they should examine their current investments and business practices, and identify where ESG could have an impact on their business. Speak to the leadership team and all relevant stakeholders to make sure the company is on the same page about how they are working to abide by ESG principles.

Companies should also speak to the applicable government regulatory agencies to have a firm grasp on what is expected of them and what recommendations might already exist to help them adapt.

Taking everything into account, companies should understand what risks ESG might pose to their business and how to minimize them. Finally, develop a strategy that turns the necessary changes into innovative growth opportunities. Often what’s good for the world is really good for business as well, so embrace these challenges head-on, and figure out where the new business opportunities lie.