Challenges to building an inclusive economy
Investors’ growing interest in sustainable and impact investing has helped kickstart efforts to build a more inclusive economy, but it has also presented new challenges, which will require greater accountability and collaboration of policymakers, leaders and businesses to address.
Today, greenwashing tactics are still prevalent. Experts in the financial sector, independent watchdog groups, and academics believe that unsubstantiated and exaggerated claims about sustainability and other green credentials are increasing in advertising and marketing materials, and on product labels due to growing interest from consumers and investors.
Additionally, investors face difficulty in evaluating sustainability performance and how it affects a company’s bottom line and reputation. This challenge is largely founded in the fact that there are no uniform requirements for reporting ESG information globally and companies thus rely on a number of different disclosure mechanisms to measure and report their impact. In turn, lack of standardisation and robust metrics, particularly in comparison to financial data, make it difficult for investors to quantify and price ESG considerations.
De Rothschild recognises that integrating ESG into a business strategy and transitioning to a more sustainable business requires a long-term view. Not all companies are ready to tackle this issue equally and swiftly, particularly if they are facing pressure on their bottom lines.
“If the house is on fire, we’re not going to think about the best fire-proofing for the living room – we’re going to put out the fire,” said de Rothschild.
Importantly, reexamining a company’s purpose may allow businesses to better tackle the perceived barriers of entry to ESG and see the value that can be unlocked instead. Once purpose is established, de Rothschild believes it becomes clearer how ESG measures and a mission to do good can support the retention of shareholders and ultimately drive strong long-term profits.
“There are trade-offs in the beginning of building an inclusive business model,” de Rothschild said. “That’s why it’s really important that companies on this journey have shareholders who understand that perhaps there’s going to be a cost now, but the long-term return will be material.”