The strong message that came out of our masterclass, The Shifting Sands of ESG is that the new focus is on nature and climate is that this thing is not going away anytime soon.
Instead, it’s speeding up in regulatory terms and in the understanding from commercial markets that there are advantages to going green.
Zoe Whitton managing director from Pollination said it was taxing on the main players – with a multitude of outcomes that all need to be handled at the same time.
It’s so easy with all of this going on to think as an investor or company: “When is it going to correct?”
Recordings of the video and audio of the session are now available
But above the noise rises one clear message: opportunity.
“Sustainability also brings opportunity; it’s starting to become part of the formation of company strategy. So one of the reasons we see that happening is because it’s giving people a few advantages.”
Her company’s clients are starting to see things like “a reduction in cost volatility. So increasing predictability about how much things will cost and therefore decreased risk.”
That might “not be very sexy and get buried at the bottom of the operational account somewhere” but there are people who do care.
People are starting to say of their company’s embrace of sustainability: “I’m more appealing to everyone, I’m more appealing to regulators, I get approved faster, and we’re appealing to customers, I get a premium, I’m more appealing to suppliers, so I get the contract signed faster.”
Along with all of this comes new markets developing at speed.
“You can see examples of these in lots of different parts of the economy, and particularly often in property and in the built environment. We are seeing a lot of markets emerging for solutions.”
When huge companies like Salesforce tell their suppliers they need to have net zero targets, as she pointed out, it’s probably a one way street.
Estelle Parker, co-chief executive of the Responsible Investors Association Australasia honed in on the finance and private sectors and their fast developing understanding that climate risk, nature risk, human rights risk, and so on were increasingly being incorporated in legislation.
“Environmental, social, and governance issues are starting to become a bit of a health check on investments,” she said.
“Why would you want to assess and protect nature? Well, that’s because corporates are understanding that there are risks that are sitting in their balance sheets.”
And there’s a growing set of tools emerging to understand and quantify that risk (keep an eye out for coming masterclasses).
For now there’s already a growing investment in biodiversity and natural capital – $21 billion in Australia alone.
And according to a survey from the RIAA about to be released 83 per cent of consumers think it’s important that their banks and superfunds make some kind of commitment in this area, Parker said.
On the flip side, “It’s dawning on a lot of companies that there is that risk sitting there that they haven’t yet identified.”
Liam Timms a co-founder of Headland Partners and a former fund manager of International Towers who was co-host with The Fifth Estate pushed out some lively and challenging questions throughout the session. There’s a lot of international capital that needs to be attracted to Australian shores, he said. And the imperatives to meet the tougher international standards of ESG were growing was obvious.
Parker said that Australian corporates had the “fifth or sixth” highest engagement with the development of the Taskforce of Nature-Related Financial Disclosure, globally.
Whitton said that if things feel like they’re moving fast, you’d be right, but add in the observation that this contrasts with the previous long period of inactivity [and outright obfuscation – Ed].
The constraint now is no longer inaction but fast action – how to keep up?
Nature was a big part of the Pollination business, Whitton said.
“We have just had an explosion of work on nature globally, but also in the Australian context across the last couple of years,” she said.
Metrics were also important but where to start? What tools to use? “
Nature is not just one big domain, it’s actually five subdomains, one of them is climate change. And one of them is oceans. And one of them is land and geomorphology.”
Another thing evolving rapidly are the increasingly watchful eyes of the regulators and the courts. Samuel Allam, special counsel at Baker McKenzie, will be following up a range of policy and legislative issues in his new regular column for The Fifth Estate took the masterclass audience on a bird’s eye view of some of the legal and regulatory cases changing the landscape.
The Australian Securities and Investments Commission $11 million penalty for instance for a company breaching the greenwash rules. He didn’t name them but they were Mercer Super.
“I think that the big focus on greenwashing by the regulators shows that consumers really do have a big appetite for this. So it will influence investment, and it will influence the way that consumers choose products,” he said. He also said the biodiversity certificates that will be created by last year’s Nature Repair Act will be globally unique.
“Certainly, I know it’s a world first – that was part of the appeal of the legislation, to have this kind of statutory framework for a new market of this kind.”
You never know, he quipped, the certificates could end up like Bitcoin.
And if you think about our shrinking natural capital, that quip just might turn out to have some substance to it. Certainly more than Bitcoin.