Giving Compass' Take:
- Since climate change is considered a macro-risk factor, ESG mandates should address climate risk differently than other micro factors like board executives and employee relations.
- How should investors approach climate risk? What is the cost of not addressing concerns appropriately?
- Read more on why businesses should care and engage with climate risk.
What is Giving Compass?
We connect donors to learning resources and ways to support community-led solutions. Learn more about us.
Since the 1990s, it has become increasingly normal to take environmental (E), social (S), and governance (G) factors into account when considering investing decisions. Yet the roots of what we now call “ESG investing” go as far back as the 1800s, when religious beliefs were an investing criterion for Methodists, Muslims, and Quakers. More recently, social issues like the anti-war sentiment in the Vietnam War-era of the 1970s and anti-apartheid sentiment in the 1980s have been part of the conversation about business, just as new demands for good governance grew after the governance scandals in the early 2000s (e.g. Enron). In short, each new generation of socially-responsible business mandates grows out of the defining issues of that era.
Climate change is our era’s defining issue, and, especially given the sluggish climate action by business and society so far, we need to rethink how we recognize the problem and propose solutions.
Although environmental concerns first entered public sentiment in the 1960s, public consciousness of climate change has moved dramatically in the last decade, perhaps because once-hypothetical consequences are now a reality. The landmark 2015 Paris Climate Agreement, for example—signed by nearly 200 countries to combat climate change—was guided by a scientific consensus that the effects of climate change are an alarming, existential risk factor for the world today. The acceptance and call to action on the growing risk of climate change in the scientific community has been focused and urgent. However, the response to climate change in financial markets has lacked the same urgency and focus, with climate change often subsumed in broader discussions of ESG as an ethical philosophy and fiduciary mandate. For example, a survey of institutional investors conducted by State Street Global Advisors shows that, despite the rapidly growing interest in ESG, the scale of adoption of ESG considerations among institutional investors remains low and mired in confusion, with many of the ESG factors lacking definition and standards of measurement. Three-quarters of respondents said that there is a lack of clarity around ESG terminology in their organizations.
Read the full article about climate action by Swasti Gupta-Mukherjee at Stanford Social Innovation Review.