The working capital report

This report traces the key developments that have accelerated the evaluation of Environmental, Social, and Governance (ESG) issues within mainstream finance, investment and the capital markets. Through perspectives from a number of contributors, the report sheds light on recent achievements in this field, the challenges ahead, and what might be needed to fully embed ESG in the market place.

Overall, the contributing authors to this report highlights the dynamism, energy and innovation that exists within the financial services communities which has created a positive, forward-looking agenda that supports sustainable development. While acknowledging the steps forward, this report also confirms the need for renewed commitment to ensure that the values of the Global Compact are welded into all aspects of financial markets. Increasingly, anecdotal market evidence suggests that the relevance of ESG risks and the emergence of new ESG market opportunities are rapidly being accepted as mainstream themes that are part of the core business thinking rather than being a marginal issue of no or limited use to hard-nosed, deal-hungry financiers. The extent to which the “Heavies” of Wall Street and The City of London are staffing new units with ESG savvy executives is confirmation of change. However, embedding sustainable finance and responsible investment within the world’s of investment, banking and insurance is a work in progress.

The report concludes looking at a series of core themes that are discussed by the reports contributors:

• business model- the planet cannot be run as a business in liquidation. Doing so will lead to more “predictable surprises” with potential environmental, economic and social shocks. At the same time, forward-looking investors and financiers are beginning to understand the immense opportunities associated with new ESG markets
  
• data and analysis- traditional financial analysis does not effectively factor in the “the risk profile and value potential of major corporations” driven by emergent ESG issues. These issues are increasingly relevant to a global market where capital flows across borders
  
• incentives: Perverse incentives are embedded within the financial system and capital markets that reward short-term thinking. Individual executives are not incentivised to adopt and adapt their behaviour in a manner that integrates ESG thinking
  
• talent: the upsurge in ESG activity and the renewed focus by the world’s largest financial institutions exploring both ESG risks and opportunities is creating a “War for Talent
  
• trust and reputation: effective collaboration and productive partnerships are the key for financial institutions to build trust and protect reputation in a global market place where advances in communication have created a “death of distance”.