NordSIP/ByAline Reichenberg Gustafsson, CFA
Stockholm (NordSIP) – The opening keynote speech at the ESG Integration Summit hosted in Stockholm by Nasdaq and Skytop Strategies on 29 August was given by Georg Kell, Chairman at London-based asset manager Arabesque and Founder of the UN Global Compact. He spoke about the journey of sustainability into the financial world, insisting in particular on its recent acceleration. Even if the progress may have seemed painstakingly slow for those on the front line, Kell finds that by stepping back one can see how incremental changes over time have led to real paradigm shifts. The UN Global Compact, a United Nations initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, was officially announced 17 years ago. It took about 15 years for finance to take notice, but the trend turned dramatically about two years ago. According to Kell, “something suddenly clicked”. Data was made available and a correlation was established between good ESG and long-term financial performance. In 2015, Arabesque and Oxford University jointly published a study, “From the stockholder to the stakeholder” which highlighted how sustainability could improve financial returns. The interest for this paper was unprecedented. The financial community seems to have finally become receptive, but will ESG retain its attention beyond the next change in market trend?
For Kell, there are tree fundamental forces which explain why this new sustainability movement in finance is not just a temporary trend. The first one is technology. Technology has enabled an irreversible increase in transparency. It has never been easier and cheaper to gather and process data, which makes it more difficult to hide issues. Problems must be recognized for what they are and solutions therefore must be explored. The second one has to do with the discovery of boundaries on a planetary level. The need for the planet’s population to compose effectively with natural resources will not disappear; to the contrary, it is likely to increase. The third force Kell talks about is more complex: he mentions governance changes at a high level, “how human societies worldwide are increasingly empowered, challenging established institutions and our old way of life”. This change was enabled by network effects and the sharing of open source ideas.
“We have now reached a point where it is possible to create real catalytic synergies”, Kell proposes. Before, there was a clear separation between the role of governments, who were responsible for society’s well being and the preservation of common resources, and the role of business and corporations, whose goal was to purely maximize their economic profit for their shareholders, with a short-term time horizon. Now the boundaries between public and private interests are increasingly blurred. “The future success will lie in the ability to recognize the overlap,” says Kell.