Unlocking the Power of Sustainable Investing: How ESG Principles Drive Economic Growth

• Environment: Carbon footprint, Climate change, Waste management, Deforestation, etc.
• Social: Labour Standards, Human and Animal Rights, Health & Safety, etc.
• Governance: Corporate, Accounting, Bribery & Corruption, etc.

If we look at the ESG framework from a singular perspective of whether an organization adheres to its corporate values, such as diversity, equal opportunity, contribution to a sustainable environment for future generations, and having a positive and meaningful impact on society. In that case, we, as financial planning enthusiasts, are probably missing the point.

There are many benefits of having an ESG framework. First, it helps the world become a better place environmentally and socially while businesses flourish. And second, it makes organizations valuable, reputable, and efficient.

Establishing best practices can have a ripple effect on the entire supply chain. For instance, industry leaders like big manufacturers can inspire their suppliers to prioritize environmental, social, and governance (ESG) issues.

Businesses must now operate with a focus on both profitability and sustainability, leading to the emergence of ESG rating agencies that evaluate organizations based on key factors such as:

• Financial Stability
• Social Responsibility
• Environmental sustainability
• Investment Risk

ESG ratings have become powerful indicators for investors and shareholders who prioritize environmental and social responsibility. Higher ratings are commonly associated with higher valuations and profitability, as well as lower volatility.

As environmental and societal issues increasingly impact long-term returns, these ratings have gained significant traction in recent years. By identifying and mitigating potential risks through the lens of ESG ratings, organizations can adapt and develop strategies that offer optimal returns for interested investors.

Currently, organizations are working to improve their standardization of climate-related data, such as greenhouse emissions, water usage, recycling, and indirect contributions to emissions through suppliers and utility providers. However, this is a work in progress as various agencies with different guidelines already exist. These include the Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Development Goals (SDGs), Intergovernmental Panel on Climate Change (IPCC), and Global Reporting Initiative (GRI).

The SEC (Securities and Exchange Commission) is also focusing on standardizing environment-related disclosures for investors with a plan to finalize these by 2024. Social and corporate governance-related disclosures will follow once the climate-related disclosures have been formalized. Despite this ongoing process, organizations are taking steps toward improving their environmental impact reporting.

Organizations often share their ESG data through supplementary documents like an annual report or on their website. Third parties aggregate this information and compare it across industries to generate ESG metrics.

Yet, the accuracy of this information cannot be assured, nor is it updated automatically from emission tracking systems. Thankfully, the SEC's disclosure rules will address these concerns by creating uniform ESG metrics, ensuring data comparison is simpler and encompasses all industries.

Companies are increasingly prioritizing carbon emission reduction through sustainability efforts. Apple has pledged to reach carbon neutrality and has already achieved considerable progress in this area. The company sources 100% renewable energy for all Apple facilities and has decreased emissions by 40% across its entire value chain since 2015.

Over 200 suppliers are committed to achieving 100% renewable energy for Apple productions. Furthermore, $4.7 billion in green bonds were issued to model how businesses can invest in reducing global emissions.

Best Buy is also a leader in sustainable practices and has been ranked No. 4 on Barron’s prestigious list of 100 most sustainable companies five years in a row. They have reduced water consumption in operations by 24% since 2019 and collected over 2.5 billion pounds of electronics and appliances for recycling since 2009.

Best Buy aims to reduce customers’ carbon footprint by 20% by 2030, generating savings of $5 billion on utility costs. These companies demonstrate the positive impact of eco-friendly practices and serve as examples for others to follow.

Environmental data from supply chains and other stakeholders is crucial and requires urgent attention. To seamlessly adopt new requirements, organizations must be creative and consider their existing solutions. EPM applications offer scalability and connectivity as a core principle, with out-of-the-box integration, proven reporting platforms, and robust metadata management solutions.

Integrating ESG data into financial and strategic planning processes has never been easier. Say goodbye to reinventing the wheel and hello to efficient and effective reporting. Some key aspects of EPM that can be explored for integration of ESG include:

1. Integration methodologies: REST APIs (application programming interfaces), Enterprise Data management, file-based imports
2. Out of the box trends, driver-based methods for calculation of forecasted emissions data
3. Complex Allocation methods
4. Machine Learning and built in AI (Artificial Intelligence) algorithms for predictions/anomaly detection
5. Narrative Reporting

Get ready for an inside look at an EPM solution designed specifically for supply and manufacturing companies in the upcoming section of this blog. Keep an eye on our updates for more details coming soon!

https://www.sec.gov/news/press-release/2022-46

https://s2.q4cdn.com/470004039/files/doc_downloads/2022/08/2022_Apple_ESG_Report.pdf

https://corporate.bestbuy.com/wp-content/uploads/2022/07/FY22-ESG-Report.pdf