Climate change has led to realities that are hard to ignore. Extreme weather events and other natural disasters have caused mass destruction and further consequences that last for years and impact millions of people. With such events increasing societal interest in environmental, social and governance (ESG) issues, how can business owners, investors and philanthropists realize a sustainable future?
The world is already witnessing mass migrations due to flooding caused by a rise in sea levels, with the United Nation’s International Organization for Migration estimating that by 2050, there would be 25 million to 1 billion environmental migrants.
Besides causing risks to businesses and investments as coastal megacities are destroyed, such events also often affect the quality of life. A study by the Economist Intelligence Unit found that when these effects of heat, drought, flood, and freeze were scaled up, global gross domestic product could be US$7.9 trillion lower than what it would be without climate change.1
Consumers worldwide are starting to demand that companies implement programs to sustain the environment. These consumers are typically of the millennial generation (born between 1980 and 2000) whose global annual aggregate income is expected to exceed US$18 trillion by 2030 and continue surpassing the spending power of every other generation for at least the next five years thereafter.2 An increase in awareness also impacts the workplace. Six in 10 millennials were willing to take a pay cut to work for a socially responsible company.3 Unsurprisingly, research has also shown that a positive social impact correlates with higher job satisfaction, and employee satisfaction is strongly and positively correlated with shareholder returns.
Likewise, investor interest in responsible portfolios is rising. Sustainable investment is expected to be a new norm, especially with millennial investors. A 2019 survey revealed that 95% of millennials were interested in social impact investing, compared with 86% in 2017.4
Governments and various stakeholder groups are also banding together to agree on globally coordinated action. There are presently two main frameworks that guide ESG actions:
- The 17 UN Sustainable Development Goals adopted in September 2015 aim to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity by 2030.
- The Paris Agreement that officially came into force in November 2016 aims to limit global warming to 1.5°C to 2°C above pre-industrial levels.
However, progress to date has been limited. The UN Environment Programme released a report warning that unless global emissions fall by 7.6% each year between 2020 and 2030, the world would not be able to meet the Paris Agreement target.5
In view of this, several global initiatives have sprung up to mobilize action toward the Paris Agreement’s climate goals. Alongside these global initiatives, the regulatory environment has also rapidly evolved to incentivize ESG actions and penalize non-compliance. These trends are likely to accelerate with increasing pressure for public policy announcements to tackle climate change. As stakeholders grow more aware of ESG issues and interested in taking action to create a more sustainable future, business owners, investors and philanthropists should consider several key areas.