Why ESG for Sycamore?
About 10 years ago, we noticed that treasury technology was allowing us to design and implement client projects that reduced paper. Although few clients really focused on that aspect of these projects, we thought it was transformational, not only by reducing cost significantly, but also by lightening the load on our planet for the use of paper, which is a water-intensive and not- highly-regenerative process.
That was a revelatory moment. We saw the increasing deployment of technology as an enabler of helping clients use fewer resources. We had already been thinking about circular manufacturing in the abstract, and we saw the increasing concerns over climate risk in portfolio management. From then it became clear that we wanted to devote an increasing proportion of our time on the topics and strategies that have become known as ESG: Environmental, Social, and Governance initiatives.
From there it was an easy decision to invest in subject matter expertise, through certification and continuing education, and it turns out that today, we are exactly where we hoped to be: in the middle of a strategic shift in the ways we evaluate risk, investment, and value across many sectors and industries. We are excited for the decade to come!
The State of ESG: A Freight Train
Suddenly, everyone is in on it! Investors have discovered that ESG is code for risk in their portfolios and are frantically looking to identify and size it. (Comparably, with one metric, across all sectors and industries, if you please.) Regulators are staffing new enforcement and policy functions expressly aimed at authenticating and standardizing public reporting. Social capital is on the line as companies aim for transparency and yet reveal gaps and discrepancies in their efforts for diversity and equity within their organizations. Shareholders are demanding change and getting it in the form of Board seats and compensation links to ESG metrics. Financial institutions are divesting, limiting, measuring, modeling, stress-testing, and otherwise re-assessing portfolios and the risk of providing capital to companies that do not measure up.
An entire new services sector has sprung up around the tasks of “ratings” and “scores” despite the lack of one set of agreed measurements.
Across the mid-corporate space, there is a vast continuum of ESG awareness, readiness, competency, and commitment. What we can say with certainty is that this is the starting point for a swiftly evolving landscape, both of substantive actions to improve across all the E, S and G factors, and of the reporting requirements that do and will accompany those actions. It’s an exciting and potentially transformative time, one that will test all of us as we navigate the complex and interconnected web of ESG.
Linking ESG and Risk
Risk frameworks are important foundations upon which companies can base guidance across a whole range of critical functions. Integrating environmental, social, and governance considerations into a company’s risk framework will create the linkage between business model and policy that can be difficult to achieve. Early ESG efforts at many financial institutions struggled with this very issue: if ESG is off on its own as a department or reporting silo, without linking to the actual lines of business, not only is it marginalized in the actual running of the firm, but it also has no ability to influence the business decisions that will make policy concerns “real”.
Risk is the critical bridging element, a catalyst that organizations can understand as both threat and opportunity. Framing ESG concerns with a risk lens will aid practitioners to go farther, faster, in bringing necessary actions to the forefront.
We look forward to exploring this topic further on this page and in the blog.