Embracing sustainability drives profitability - Jane Dennyson

In the words of the prominent US environmentalist, David R Brower, “There is no business on a dead planet”. As this concept becomes a reality, companies are putting sustainability or ESG (Environmental, Social and Governance) at the heart of corporate strategy and there is now clear momentum behind this agenda. It is no longer optional for business to consider sustainability. Quite simply, those who don’t are unlikely to survive the next ten years.

Sustainability is no longer an optional extra for business

Last week BlackRock’s CEO Larry Fink issued his annual letter to corporate leaders calling on all companies, ”to disclose a plan for how their business model will be compatible with a net-zero economy”, and remarked that, ”There is no company whose business model won’t be profoundly affected by the transition to a net-zero economy.”

The tone of rhetoric around the ESG agenda is shifting. The words “opportunity” and “innovation” are sitting alongside “risk”: a strong theme at the World Economic Forum’s Virtual Davos conference this year. There is clear and compelling evidence that those embracing the ESG agenda are outperforming those who are not.

In November 2020, Fidelity’s Putting Sustainability to the Test report which analysed 2,660 firms, showed that “stocks with the lowest ESG ratings lost 23 per cent over 2020, while those with the top ratings saw a positive return of 0.4 per cent”.

Jane Dennyson, Founder and CEO, Thrive Consulting

They commented: “The positive relationship between high ESG ratings and returns over the course of a market collapse and recovery, supports the view that a company’s focus on sustainability is fundamentally indicative of its board and management quality and its resilience.” This feels particularly relevant as the UK leaves the EU.

We are now seeing the physical impacts of climate change first hand. The effects of global warming are significant, unpredictable and felt locally: the most obvious being the sheer number of extreme weather events we are experiencing.

Direct impacts are both operational and financial; supply chain disruption, changing agricultural yields and increasing insurance costs to overall asset value, cost of capital and the viability of products and services in a changing market. Companies that recognise these potential risks are able to innovate and capture new markets, using this pivotal time as an opportunity to evolve, lead and create value. As a Scot who recently moved back (from London) I’m constantly reminded that innovation is core to our being. Now is the time for companies to invest in this function and mindset. If there is one upside to this global pandemic, it has transformed how and where we do business, proving that even the largest corporations can adapt quickly when circumstance demands it.

Of course, it’s not all about climate. Social and governance agendas remain in sharp focus with 2020 bringing many issues into the spotlight. Earlier this month, State Street became the latest asset management firm to insist that companies disclose the racial and ethnic make-up of their boards. Their CEO Mr Taraporevala remarked: “The preponderance of evidence demonstrates unequivocally that racial and ethnic inequality is a systemic risk that threatens lives, companies, communities and our economy — and is material to long-term sustainable returns.”

The call for corporate transparency has never been stronger and the business case is clear: it builds trust, helps attract and retain talent, generates better performance (through access to information) and improves efficiency.

Until recently the common misperception was that sustainability was at the cost of profitability. In February 2020, I created Thrive Consulting to dispel this by helping companies to identify and integrate ESG for a sustainable and profitable future. We don’t believe the choice is either or.

Jane Dennyson, Founder and CEO of Thrive Consulting Services Ltd.