John Ward is the Chief Investment Officer of Bridge Investment Group’s Office Division and a Principal at Bridge Commercial Real Estate.
If your company isn’t talking about an environmental, social and governance (ESG) strategy yet, it should do so without delay. ESG is becoming an integral part of many companies’ missions, and with it come moral, ethical and financial implications. Now, after the Covid-19 pandemic and social justice movements of the past year, I’ve noticed that companies are facing increasing pressure to get this right — and quickly. Of course, ESG is nothing new and has been gaining momentum for years. According to an analysis from Bank of America Merrill Lynch reported by Business Insider, “Inflows into ESG strategies over the next few decades could rival the size of the S&P 500 today.” ESG initiatives were considered more moderately just a few years ago. Today, they are a core focus of both market research and company strategy. According to BlackRock’s head of iShares Americas, Armando Senra, ESG funds brought in over $21 billion during quarter one of 2021 alone — compared to over $51 billion for all of 2020. He also predicted that total ESG investment will reach $1 trillion by 2030.
I believe a growing number of job seekers will focus their search on companies that promote strong ESG values and avoid those that do not. As this Nasdaq article explains, companies that deploy strong ESG initiatives may be able to attract and retain top talent; according to 2018 LinkedIn research, “71% of professionals say they would be willing to take a pay cut to work for a company that has a mission they believe in and shared values.” Similarly, there is bottom-line motivation to act now, as firms like BlackRock are taking elevated notice of which firms have incorporated ESG into their corporate and operational DNA.
I have been a member of Bridge’s ESG committee since its founding and have helped to coordinate and implement sustainability initiatives across the company. Here are three of my suggestions for implementing a financially sound ESG strategy to benefit your company’s long-term success.
1. Listen To Your Stakeholders And What They’re Asking For
When companies start to plan or enhance their ESG strategy, it is important for them to consider the components that support the “E,” “S” and “G.” E, or environment, covers a company’s carbon footprint and sustainability efforts. S, or social, can include a company’s diversity makeup, inclusion practices and hiring operations. G, or governance, is driven by the board, C-suite and key members of leadership and may involve showcasing how a company implements positive change in areas like executive pay and leadership diversity. Thus whether a company is implementing a solar panel program or creating more robust diversity initiatives, it should no longer ignore these opportunities to become an overall more responsible organization. So where should the team begin?
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Great starting points include proactively engaging your key stakeholders and listening to what is top of mind for them. For example, Bridge Commercial Real Estate began installing solar panels across its national office portfolio after several millennial employees initiated a dialogue on the potential financial and environmental benefits. The proposal quickly picked up steam, and the firm’s multifamily, senior housing, industrial and development verticals also started pursuing solar initiatives.
International companies like Amazon, Apple and IKEA have also implemented solar programs, and a company of any size can scale its program up or down as needed to pursue renewable energy practices and reduce the company’s carbon footprint.
2. Hire Leaders To Do The Research And The Work To Make An Impact
To show true commitment to ESG, companies should pull together employee-sourced committees, as well as employ staff who are dedicated to the overall ESG strategy. Our firm organized an ESG steering committee with investment representatives from each of the firm’s verticals and hired a new vice president of energy and sustainability — a position we recently created — to lead the charge.
The social component of “ESG” is equally important, as human capital should be regarded just as highly as financial capital. Companies can utilize diversity committees to help advance company-wide inclusion efforts, and they can also hire experienced staff to lead specialized diversity, equity and inclusion initiatives. I believe this investment in human capital, including in the C-suite, is paramount and shows a true commitment to a comprehensive ESG strategy.
3. Keep Moving Forward — And Anticipate What’s Next
Having one initiative and creating one steering committee simply isn’t enough. As more employees, clients and additional stakeholders pay closer attention to ESG, they will likely also be examining a company’s goals and results more closely. According to Deloitte, “ESG-mandated assets in the United States could grow almost three times as fast as non-ESG-mandated assets to comprise half of all professionally managed investments by 2025.”
Remember that creating a strategic ESG plan is only the foundation. Just like with financial measurement, a company should set ESG goals, pursue relevant metrics for measurement and report them on a quarterly or annual basis. As companies continue to establish benchmarks and goals, they can keep moving forward and better anticipate what’s next on their ESG road map. It’s also important to diversify these initiatives by launching efforts in each of the environmental, social and governance areas. Doing so helps ensure that an organization is well-positioned for the possible coming wave of ESG capital that could reshape the business landscape in the decade ahead.