The Golden Rule: “He or she who has the gold makes the rules.” Increasingly, the Golden Rule is requiring sustainability. Large financial-management firms such as BlackRock, the Vanguard Group, Fidelity Investments, Charles Schwab, etc., control how a massive amount of money is invested. The top 10 asset managers control over $30 Trillion. (Yes, "Trillion," with a “T.”) 

Investment professionals at those firms determine which stocks and bonds to acquire on behalf of their funds' investors, who effectively pool their resources and pay a fee to have their money professionally managed. Increasingly, environmental, social, and governance (ESG) sustainability performance is driving decisions about how and where the fund managers place all that money. 

The manufacturing, process, mining, and other equipment asset-dependent industries consume nearly 30% of all the energy consumed on earth, as well as most of the mined or extracted materials. The microscope of sustainability will be focused on these industries, which, in turn, could substantively affect your organization's financial performance and access to capital.

The importance of ESG performance in investment decisions is increasing very dramatically. Globally, sustainable investment grew by more than 34% between 2016 and 2018. In the United States, growth over the same period was nearly 38%!  A great deal of this money is going toward organizations that meet certain ESG sustainability goals (and the trend is not slowing down). There are many different strategies for making sustainable investments. This is sometimes referred to as “the fifty shades of green.” However, the investment criteria can be broken down into three general categories; 1) ESG investing; 2) ethical and negative exclusions; and 3) positive inclusionary/impact investment.

ESG investing is based on a numerical score, which usually comes from a third party that evaluates companies on environmental, social, and governance performance. These scores are publicly available from a variety of sources, including Sustainalytics (www.sustainalytics.com) and Bloomberg ESG ratings (www.bloomberg.com), among others. Those indices allow investors and investment-fund managers to compare companies within and across business sectors to drive investment in companies that are deemed best in class for ESG performance (within sector) or best in universe (across sectors). Ethical-exclusion and positive-inclusionary/impact investing decisions reflect targeted investments that focus on punishing business practices that the fund manager deems undesirable or rewarding those that the fund manager wishes to promote.

Environmental-performance assessment is based upon carbon, water, waste, energy consumption, procurement and materials, physical risks, and climate policies. Social-performance-evaluative criteria typically includes, employee rights, diversity, stakeholder engagement, remuneration, and responsible sourcing policies (e.g., no-conflict materials). Governance criteria on which organization’s are evaluated often includes board composition, compliance and legal, corruption-mitigation, insurance, shareholder rights, and disaster-mitigation and recovery plans.

We in the manufacturing, process, mining, and other heavy industries should be mindful that our operations are extremely susceptible to poor ESG scores for several reasons. First, we are heavily reliant upon energy, raw materials, water, and other inputs. We also employ a great number of people and are natural magnets for development (some of which may be incompatible with the planet). Moreover, there is always a risk of potentially dangerous gaseous, vaporous, liquid, and/or solid releases that can harm people and the environment. 

The point of all this? Be sure you know your organization's ESG score and have a plan for eliminating or mitigating undesirable impacts. That can help your operations remain a favorable option for sustainable investment.

dtroyer@theramreview.com