Back to Insights
March 27, 2020

The ESG Long View; Vol. 1: ESG Remains in Focus

Vol. 1: ESG Remains in Focus

We are living in unprecedented times, with each day bringing new information about the Coronavirus and the outlook for our society, our public health, and the market. While people and companies are working through unanticipated and evolving challenges, we face a set of dual imperatives: to safely shepherd people and resources through this crisis, and to remain steadfastly focused on the things that have always mattered for the long-term. In our separate piece “Does ESG Matter Amidst a Global Crisis,” we consider how companies should be thinking about these imperatives and where ESG fits in.

In this first ESG Long View, we share some of the other, broader ESG themes that are still top of mind for investors and remain important for public companies to consider. We’ll explore some of these individual themes in greater depth in future insights. As always, please reach out to discuss – we’re here to help.

1. Active managers are racing to integrate ESG …

Driven by client demand and by growing evidence that robust ESG practices are linked with stronger financial results, asset managers are racing to build their ESG expertise and offerings. This is reflected in both a growing number of ESG-oriented products as well as the use of ESG to inform traditional stock-picking strategies. In addition, we see more collaboration than ever before among proxy voting and portfolio management teams.  Punctuated by Blackrock’s announcement that “sustainability should be our new standard for investing” and supported by early evidence that ESG funds are proving resilient in a time of crisis, ESG investing is a trend that public companies cannot ignore.

2. … each in their own way.

While nearly all asset managers are competing to integrate ESG into their products, how they do so varies widely. Some investors continue to rely heavily on third-party ESG ratings, while others have created their own proprietary frameworks that incorporate a broad span of company disclosures and third-party data – such as State Street Global Advisors’ R-Factor™ and T. Rowe Price’s Responsible Investing Indicator Model. Other asset managers, such as Wellington Management, are teaming with scientific research centers and other non-traditional partners to gain an edge on climate change insights and other ESG topics. In addition, third-party ESG ratings from firms like Sustainalytics and MSCI are increasingly a part of investors’ frameworks, although these ratings often diverge and may send mixed signals. This challenge is compounded by claims of inaccurate or stale data.

3. Sustainability is hard…

Given the wide range of investor approaches to ESG, the vast array of stakeholder concerns, and the complexity of third-party ESG ratings, public companies must reconcile what are at times conflicting messages. This is by no means straight-forward, especially considering the qualitative nature of many ESG concerns. In addition, companies remain subject to persistent quarterly capitalism pressures from investors solely focused on the next earnings release, making the long-term planning required for a successful sustainability strategy that much more challenging. This couldn’t be more evident as companies try to survive beyond the COVID-19 pandemic, while also keeping an eye towards delivering best-in-class stewardship of environmental resources and social capital.

4. … but not impossible.

Market standards and best practices around key sustainability topics are slowly solidifying, both in terms of disclosure as well as sustainability strategies. ESG leaders are developing and disclosing comprehensive ESG materiality assessment frameworks. They are also demonstrating for investors and other stakeholders how corporate strategy and sustainability strategy work together (and not in silos). On material ESG issues, they are monitoring and measuring continuous progress. Most investors recognize that companies cannot leap from ESG laggard to leader in one year. Finally, while short-term investors are unlikely to disappear entirely, investor bases are shifting towards longer term shareholders who are primarily focused on multi-year time horizons.

5. Growing momentum behind SASB.

Although the ‘alphabet soup’ of ESG reporting frameworks persists, many of the world’s biggest investors are putting their weight behind the disclosure standards set by the Sustainability Accounting Standards Board (SASB). In particular, SASB’s Investor Advisory Group, which advocates for company adoption of the SASB standards, now consists of more than 40 investors (including the “Big Three” of Blackrock, Vanguard, and SSGA) and $33 trillion in assets under management. While public companies should not ignore other frameworks which may be responsive to key stakeholders, a company evaluating investor preferences for sustainability disclosure should look first to SASB. (SASB standards can also be used to meet the recommendations of the Task Force for Climate-related Financial Disclosure, which itself has significant global support).

6. Board ESG acumen in the spotlight.

Investors worldwide see sustainability as a board-level issue. And methods to build an ‘ESG competent board’ have multiplied, whether through formalizing ESG oversight within the board’s structure and processes, ramping up the director education process, or recruiting directors with sustainability expertise. Yet we continue to hear that many boards still lack the skills, experience, and know-how to properly support their companies’ sustainability strategy. Investors’ focus on the strength of board oversight will only increase, and companies should expect investors to withhold votes from directors if oversight of ESG risks and opportunities is insufficient.

7. Stakeholder capitalism is front & center, but not without its skeptics.

The past year has seen a number of vociferous calls for consideration of companies’ social purpose, non-investor stakeholders, and social license to operate. Hard evidence continues to show that having a strong purpose is good for a company’s business and reaps positive results with its consumers, employees, communities, and ultimately, its investors.

Despite growing support, there are still many skeptics of stakeholder capitalism in corporate America – from both sides of the political aisle. We expect the shareholder primacy vs. stakeholderism debate to dominate the ESG discussion for some time. In the meantime, companies should make sure their key stakeholders – including investors, employees, and communities – understand what the company stands for, how it defines its purpose, and why this purpose will benefit these groups.

8. Activist investors are increasingly focused on ESG.

Activism remains top of mind for most companies, particularly as the number of activists grows (over 145 different investors launched campaigns in 2019). One recent, related trend is that activists have begun to add environmental and social issues – including carbon footprint reductions, greater board and workforce diversity, and other socially responsible practices – to their list of demands in order to appeal to the ESG focus of the Big Three and other large investors. A safe bet is that sustainability factors will form a core element of many activist campaigns in 2020 and beyond.


SGP is an independent, practitioner-driven team of leading investor experts on corporate governance and ESG (environmental, social, and governance) strategy. Established in 2020, SGP brings over 50 years of experience at the largest passive and active asset management firms in the world, including expertise in proxy voting, company engagement, activism, company disclosure, and portfolio management. The firm’s partners bring multi-disciplinary backgrounds and a client-centric mindset, which enables them to create bespoke solutions for their clients.

To learn more about SGP, please visit our website at sgpgoverance.com or contact us directly by phone (215-273-9731) or email contact@sgpgovernance.com.