Market Overview: Investor Focus On ESG Will Transform Sustainability Strategies

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Executive Summary

The accelerating embrace of Environmental Social and Governance (ESG) metrics by the financial community is radically changing the way CEOs at listed firms need to think about sustainability. Passive sustainability strategies which focus on voluntary disclosures, glossy brochures and self-selected material issues are no longer fit for purpose. Whether it is the energy transition for firms in the fossil fuel value chain, the circular economy for product manufacturers or global governance issues for services firms, CEOs need to adopt a more active approach to sustainability management.  To satisfy the thirst of investors and lenders for superior ESG performance, CEOs need to fix governance, overhaul ESG information management and select one of five active sustainability strategies depending on the value at risk. Digital strategies will be a key ingredient of active sustainability strategies and there will be significant upside for vendors which already offer systems of record for environment, health and safety; governance, risk and compliance; product stewardship; and supply chain transparency.  

Table of contents

In 2021 CEOs Ignore Investor Views On ESG And Sustainability At Their Peril   

Market Forces Will Compel Executives To Transition Away From Passive Sustainability Strategies  
The Focus Of Financial Markets On ESG Will Trigger A Shift To Active Sustainability Strategies 
Many Factors Will Slow The Transition From Passive To Active Sustainability Strategies

CEOs Need To Fix Sustainability Governance To Succeed In The Next Decade  
In An ESG World, Sustainability Can No Longer Be Parked In Corporate Communications
Governance Of Sustainability Issues Needs To Be Embedded In Operational Decision Contexts

Overhauling ESG Information Management Will Become A Big Priority  
Firms Need A Flexible Data Strategy To Cope With A Fast-Changing ESG Landscape
Deployment Of ESG Information Systems Should Reflect Emerging Risks And Opportunities
Existing Software Applications Will Accelerate The Success Of ESG Information Systems 

Five Sustainability Strategies Respond To Investor Pressure On ESG Performance  
#1. Deliberate Delay Continues As The Preferred Strategy Of Defensive CEOs
#2. Risk Mitigation Meets The Needs Of CEOs In Challenging Positions On Sustainability Trends
#3. Active Alignment Emerges As The Glidepath To Benefit From ESG Opportunities
#4. Portfolio Optimization Is A Necessary Response To Sustainable Industry Transformation
#5. Innovative Strategies For A Sustainable Future Fully Align With ESG Market Opportunities

Table of figures

Figure 1. Financial Markets Participants Fire A Barrage Of ESG Requests At Issuers 
Figure 2. ESG Dealflow: Acquisitions, Investments And IPOs Ramped Up In 2020 
Figure 3. Comparison Of Passive And Active Sustainability Strategies 
Figure 4. Use Cases For A Flexible ESG Information Architecture 
Figure 5. Impact Of Financial Markets’ ESG Developments On Corporate Sustainability Strategies
Figure 6. Existing Software Applications Form The Building Blocks For ESG Information Architecture 
Figure 7. Five Sustainability Strategies Respond To ESG Pressure From Investors  

Organisations mentioned

Allianz, European Securities and Markets Authority (ESMA), Loan Market Association (LMA), 3M, Accenture, Acclimatise, Accruent, Accuvio, Achilles, Aclima, Act Analytics, AdaptIT, Adidas, Alcumus Group, Alstom, alva, American Petroleum Institute (API), Anglo American, Arcadis, Ashcroft, ASM, Assent Compliance, Aston Martin, Atos, Autorité des marchés financiers (AMF), Autoriteit Financiële Markten (AFM), Avetta, Bank of Canada, Bank of England, Barclays, Benchmark Digital Partners, Bill Identity, Bithum, BlackLine, BlackRock, Bloom Energy, Bloomberg, Board International, Bombardier, BP, Brandwatch, BuildingIQ, Cambridge Institute for Sustainability Leadership, Carbon Cap Management, Carbon Delta, Carbon Disclosure Project (CDP), Carbon Engineering, Carbon Tracker, Carnrite Ventures, CBRE Global Investors, Cenovous Energy, Ceres, Certent, Chevron, Clarity AI, Clean Energy Ventures, ClearTrace, Climate Risk Services, Climeworks, Coca-Cola, Colgate-Palmolive, Copperleaf, Cority, Coronal Energy, Corporater, Corvex Safety, Cosmo Tech, CSRware, CVC Growth Partners, Data Simply, Databricks, Datamaran, Deepki, Deloitte, Deutsche Börse, Diagram, Diginex Solutions, Diligent, DRAX Group, DWS Group, EcoAct, EcoATM, Ecometrica, EcoOnline, EcoVadis, ECPI Group, Efforce, Ellerston Capital, Emitwise, Enablon, Enel, Enel X, Energisme, EnerNOC, EnHelix, Enterprise Health, Environmental Resources Management (ERM), Envizi, Equinor, Ernst & Young (EY), European Investment Bank (EIB), Evora, Fabriq, Facebook, FactSet, FigBytes, Financial Conduct Authority (FCA), Financial Stability Board (FSB), Fitch Ratings, Four Twenty Seven, Gap Inc., GBatteries, General Electric (GE), General Motors (GM), Gensuite, GES International, GHGSat, Global Initiative for Sustainability Ratings (GISR), Global Real Estate Sustainability Benchmark (GRESB), Global Reporting Initiative (GRI), GMI Ratings, GOARC, Goby, Golder, Google, Graticule Asset Management, Greenpeace, GridPoint, Hatch Data, HBTC, Health & Safety Institute (HSI), Honeywell, Hong Kong Exchanges and Clearing (HKEX), HSBC, Iberdrola, IBM, ICE, Ideagen, Impossible Foods, Infosys, InfoTrie, Institute of International Finance (IFF), Institutional Shareholder Services (ISS), Intelex, International Capital Market Association (ICMA), International Financial Reporting Standards (IFRS) Foundation, International Integrated Reporting Council (IIRC), International Monetary Fund (IMF), Intesa Sanpaolo, iPoint-systems, ISN, IsoMetrix, ISS, Jaguar Land Rover, Johannesburg Stock Exchange, Johnson Controls (JCI), Jupiter Intelligence, JUUL, Kohler, KPA, Landmark Information Group, Lincoln Clean Energy, Lloyds Banking Group, London Stock Exchange Group (LSEG), LucaNet, Manzama, Marathon Oil, MarketPsych, Matter, Measurabl, Mercedes-Benz, Meteomatics, MetricStream, Metrio, Mexichem, Microsoft, MioTech, Moody's Investors Service, Morningstar, Morphic Asset Management, MSCI, NASDAQ, National Geographic, Natixis, NAVEX Global, Nestlé, Newmont Corporation, Novisto, NY Stock Exchange (NYSE), Occidental Petroleum Corporation, OneReport, Oracle, Orbia, Ørsted, Pacific Gas & Electric (PG&E), Patagonia, PayPal, Perpetual, Persefoni, Phillips, PIMCO, Planon, Plexus, Presidio Graduate School, ProcessMAP, Project Canary, Prophix, Pro-Sapien, Prudential, Pulsar Platform, Quantis, Quentic, Rainforest Alliance, RealPage, Red Flag Group, Refinitiv, RepRisk, Revlon, Rice Investment Group, Rio Tinto, RiseWise, RobecoSAM, Rolls-Royce, Rusheen Capital Management, RWE, S.Café, SAI Global, Salesforce, Santander, SAP, Satellite Applications Catapult, Scania, Schneider Electric, Scope 5, Scottish Widows, Sedex, Seven Oaks Acquisition Corp, Siemens, Sierra Club, SINAI Technologies, Sinopec, Smog Free Tower Project, Snowflake, Solactive, Source Intelligence, Sphera, SSE, State Street, Statoil, StatPro Group, SustainAbility, Sustainability Accounting Standards Board (SASB), Sustainalytics, Sway Ventures, Switch Automation, SynTao Green Finance, T. Rowe Price, Task Force on Climate-related Financial Disclosures (TCFD), Tellus Institute, Terrafertil, Tesla, Teva Pharmaceuticals, The Climate Service, The Ocean Cleanup, thinkstep, Total, Trafigura, Transparency International, Treeni, Trillium Asset Management, Trintech, Truvalue Labs, U.S. Securities and Exchange Commission (SEC) , UL, Unilever, United Nations (UN), University of Massachusetts, Urgentem, Urjanet, Vale, VelocityEHS, Velocys, Vena Solutions, Veriforce, Verisk 3E, Vigeo Eiris, Volkswagen (VW), Volvo Cars, Who's Good, Willis Towers Watson, Workday, Workiva, World Wildlife Fund (WWF), Yardi

About the author

David Metcalfe

CEO
David is the CEO of Verdantix and co-founded the firm in 2008. Based on his 20 years of experience in technology strategy and research roles he provides guidance on digital strategies to C-level executives at technology providers, partners at private equity firms and function heads at large corporations. His current focus is on helping clients understand their market opportunity tied to ESG investment trends and their impact on corporate sustainability strategies. During his 12 years running Verdantix – including 4 leading the New York office – he has helped dozens of clients grow their businesses through fund raising, acquisitions and international growth. David was previously SVP Research at Forrester and Head of Analysis & Forecasting at BT. He holds a PhD from Cambridge University and also worked as a Research Associate at the Harvard Business School.

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