The discourse has fortunately influenced the receptive global investor psyche. Today they seem increasingly interested in the environmental, social, and governance (ESG) accountability of their funds.
Episodes of unfretted institutional greed that rewrite the terms of wealth distribution, favouring the few, are not rare in modern economic history. The response has often oscillated from intense criticism to moderate policy action. But in a world already battling with climate change and social divergence, the disproportionate ramifications of the pandemic have raised a compelling and fundamental question: whether economic growth at acute human cost is acceptable and, most importantly, sustainable in the long term?
The discourse has fortunately influenced the receptive global investor psyche. Today they seem increasingly interested in the environmental, social, and governance (ESG) accountability of their funds. Thus, as the idea of Triple Bottom Line gets mainstreamed, this piece tends to argue the indispensability of both ESG and impact investing if we are to prevent and reverse our downslide practically as a civilisation.
Mainstreaming of sustainability financing
The pandemic and its induced disruptions are undeniably at the root of a renewed faith in sustainable growth. 2021 on an average saw sustainable funds net inflows of $17.3 billion each quarter against a $12.8 billion 2020 average.
An often mistaken distinction
Nevertheless, amidst much optimism, confusion persists especially on the clarity among sustainability investment professionals on the difference between ESG investing and impact investing. To simply put it; ESG investments are more concerned with the environmental, social and governance aspects of a company’s operations and encourage good ESG practices that mitigate business risks in the long term. On the other hand, impact investments are focused on the products and services for communities that can trigger and amplify measurable social and environmental impacts. They gravitate the world towards sustainability targets, besides generating tangible financial returns which often are reinvested for development purposes.
The ever-widening divergence
Both can be correlated in the context that at present operational viability of businesses and the collective progress of the world towards the stated UN Sustainable Development Goals (UNSDGs) are equally challenged by powerful forces at play. Factors ranging from extreme weather events, water scarcity, social fault lines, geopolitical unrest, poor labour practices, and irresponsible waste management to limited governance threaten to undermine Business As Usual. Similarly, with the UN Sustainability Agenda in its last decade, the economic shock of COVID-19 has already widened the global sustainability funding gap. OECD estimated it to be $ 2.5 trillion annually for low-income countries and $ 2 trillion for other developing countries, requiring an additional 15% and 4% of their GDP, respectively, every year.
However, when the capabilities of public institutions are stretched thin by the sheer magnitude of the issues facing our world today, businesses need to respond and assist. Concerted ESG and impact funding within proper accountability frameworks can bring the tailwinds to achieve operational transformations and build back better with measurable outcomes.
Convergence in the ICT backdrop
Consider the global Information and Communications Technology (ICT) landscape that operates at the cutting edge of innovation. It offers significant contributions to socio-economic progress of countries worldwide in terms of digital inclusion through connectivity. However, companies operating in the ICT space are increasingly encountering the economic burden of being sustainable. It is evident from escalating prices of raw materials and resources, extended producer responsibility (EPR) strategies and advanced waste from electrical and electronic equipment (WEEE) directives.
Here, an ICT business attempting to embed sustainability principles into its operational models and having access to adequate ESG funds to materialise positive shifts can bring a lot of value to the environment, society, and shareholders by mitigating risks. It will require consistent investment thrusts in controlled emission profiles, Life Cycle Assessments (LCA), Zero Waste to Landfills (ZWL) and water positivity, intelligent logistics programming to minimise vehicular emissions, renewable energy, advanced material standards, lean governance and consistent human capital development efforts. Similarly, through impact investing, each of these efforts can be mirrored for communities, ensuring digital inclusion, poverty alleviation, gender equality, access to healthcare and quality education as well as environmental resilience and economic development.
More importantly, ESG and impact investing have special significance for developing or least developed countries that have massive technology, cost and governance barriers to push towards progress. Here, such financing can pace up the design, development and delivery of products and services contextualised for adoption across vulnerable geographies.
Toward a Better Future
The urgency for sustainable development will need a deliberate effort and unity of purpose across sectors. With decades of progress threatening to be washed away within months, today, both ESG and impact investments have critical roles in financing inclusion. Their convergence can be the motive force in building a new economic order that is fair and responsive to the long-term interests of the planet, the communities and the investors.
(The Author is an ESG professional. Views expressed are personal and do not reflect the official position or policy of the India CSR)
Article first appeared in Financial Express.
