At Sustainable Pittsburgh we are often asked to name the biggest sustainability issue of the day. The response we increasingly find ourselves giving is the juxtaposed mega forces of money in politics and the long-anticipated market turn to favor business sustainability performance. Surprised?
On one hand, across the national landscape, following the money finds fossil interests far outweighing social and environmental causes. For example, an investigation reported this month by The Philadelphia Inquirer and the Pittsburgh Post-Gazette estimated that natural gas drillers spent more than $60 million to woo the Pennsylvania legislature. Chief among interests is severance tax avoidance. Indeed, the long-delayed budget deal on the table today is sans severance, highlighted by GOP House refusal to even allow a floor debate on it. Instead, we have a budget plan featuring more borrowing and an increase in gambling proceeds. We are the last big gas-producing state without a severance tax.
Meanwhile on Wall Street, a profoundly different story is unfolding. The market is now tipping to favor business aligned with sustainable development.
This past Wednesday, the CEOs for Sustainability executive council (facilitated by Sustainable Pittsburgh) hosted keynote speaker Mike Krzus, BrownFlynn Senior Advisor and expert on corporate accounting and investing. Mr. Krzus was on the CEOs’ message that investors of all kinds are shortlisting as good investments those companies that score well in ESG (environment, social, governance) measures. Data scientists are mining performance measures to score businesses—whether they know it and like it or not. Aggregators the likes of Bloomberg, Moody’s, and MSCI (who a year before the scandal downgraded VW for its insular board) are today selling this information to asset managers such as Morgan Stanley, Blackrock, and Vanguard. Now even the UN Sustainable Development Goals (SDGs) are being embraced as values whose positive solutions represent tremendous business opportunities, estimated to be at least $12 trillion.
Mr. Krzus shared fact after fact to illustrate the fast-growing financial signals favoring businesses that rate high in measures of environmental and social performance and for best practices in the way they govern themselves per accounting procedures and transparency in self-assessment of material liabilities. Even diversity in the boardroom and climate-related risk assessment now matter to large investors and consumers. Furthermore, Mr. Krzus gave insight to the changing persona of investors themselves, who are increasingly young and female:
- $30 trillion – Wealth transfer from baby boomers to millennials in the coming decades (Accenture, “The ‘Greater’ Wealth Transfer,” 2012.)
- 67% – Of millennials believe investments are a way to express values vs. 36% of baby boomers (U.S. Trust, “U.S. Trust Insights on Wealth and Worth,” 2014.)
- 76% – Of women express a high level of interest in ESG performance (Morgan Stanley Institute for Sustainable Investing, “Sustainable Signals: The Individual Investor Perspective.”)
- 66% – Of wealth will be controlled by women in the U.S. in the next 10 years (MSCI, “Exploring the ESG Quality of Fund Holdings,” 2016.)
Regarding the new era of capital allocations in step with changing value propositions for good, Mr. Krzus urged, “Are you creating, fighting, or embracing it?” The winners will be those who see value creation not as maximizing short-term profits but about the future. Krzus invited corporate leaders to meet the market by never compromising quality or ethics and to bake into all enterprise a commitment to ESG targets, balancing long-term viability of an organization with the needs of society.
Sustainable Pittsburgh finds great optimism in these demographic and market trends. In the competition for status quo vs. progress, we are putting our bets on new market realities trumping money in politics.