Corporate Insights Making an Impact:
Earning Returns on Sustainable Terms

Making an Impact:
Earning Returns on Sustainable Terms

(2nd Quarter 2019)

Themes

  • The ABC's of ESG
  • ESG investing demand is high and growing
  • ESG investments pay off with outperformance
  • Quantifying ESG outperformance
  • Regulatory interest and shareholder activism
  • The rise of green bonds for impact investing
  • Remaining challenges and debunking ESG skeptics

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Introduction:

In 1970, Nobel laureate Milton Friedman wrote that "there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game."1 Since then, the world has changed in ways that few could have possibly foreseen. Today, businesses confront rapidly growing movements advocating that they also focus on promoting desirable outcomes relating to environmental, social, and governance ("ESG") objectives…in addition to profit.

These movements arose in response to the growing realization that a focus on ESG objectives can mitigate critical global risks. The World Economic Forum reckons that the risks with the highest impact and likelihood are increasingly related to sustainability in some way: extreme weather events, natural disasters, failure of climate-change mitigation and adaptation, among others.2 Whether they are environmental issues such as climate change, water scarcity, or overpopulation; social issues encompassing unfair labor practices, product safety concerns, and data security; or governance matters involving business ethics and management incentive structures, these movements are increasingly attuned to companies’ performance in these areas.

Given these circumstances and the attention now paid to them, those companies best able to address and mitigate these risks through ESG-focused programs and initiatives can attract new investors, access new and growing sources of capital, and ultimately lower their funding costs. All of which underscores the fact that ESG should be an integral component of enterprise risk management. In other words, caring about ESG is good business.

This paper, the thirteenth in our ongoing series of Credit Suisse Corporate Insights, provides context to the emerging ESG movement which is grabbing headlines and attracting the attention of government regulatory bodies and corporate executives, as well as capital from institutional investors. We shed light on the development of the ESG ecosystem, so that our clients are better informed and can adopt appropriate strategies to tackle the challenges that will accompany the rapid growth of ESG.

  1. Source: Bloomberg.com, Bloomberg,
    www.bloomberg.com/quicktake/sustainable-investing.
  2. Source: “The Global Risks Report 2019.” World Economic Forum,
    www.weforum.org/reports/the-global-risks-report-2019.