More companies and investors are following the money
This article is drawn from the GreenBuzz newsletter from GreenBiz, running Mondays.
"Follow the money."
It has been a catchphrase since the 1976 movie "All the President's Men," in a scene where the legendary informant "Deep Throat" whispers those words of advice to Washington Post reporter Bob Woodward, who was investigating the Watergate office break-in and corruption within the Nixon administration. (It's likely this never actually happened but was the product of Hollywood screenwriting.)
Deep Throat was right: The Watergate scandal revealed hidden political slush funds Richard Nixon and his cronies used to pay off the men who burgled the Democratic National Committee headquarters. It led to the president's resignation.
Since then, "follow the money" has been used, if not overused, in a wide range of contexts across the political spectrum and beyond. Basically, it implies that if you track financial flows, you'll find answers, ideas, insights — and sometimes, greed and corruption.
You'll also find also the power to effect change within the sustainability world.
These days, even the most sincere "corporate responsibility" commitment can take a company only so far when it comes to aligning its strategy and operations with the targets of the Paris Agreement and the Sustainable Development Goals — or, for that matter, with creating local jobs, reducing homelessness, feeding the hungry, empowering the under-represented or ensuring human rights around the world.
Tracking money flows hasn't been an effective means for doing these things, simply because those in charge of advancing a company's "corporate responsibility" are often shunted to the sidelines, not central to a company's revenue flows or financial well-being. When CSR programs, however well-intentioned, aren't core to a company's success, they're not sustainable.
That dynamic is starting to fade and another is rising: recognition by investors of the link between sustainability and risk — and, in particular, climate risk, and how that can affect financial performance over time.
Increasingly, companies are being asked to provide investors with detailed information about their climate and other environmental, social and governance, or ESG, impacts. And slowly but surely, such data is finding its way to Wall Street. Large institutional investors are asking, sometimes demanding, that companies report ESG data in a form useful for making risk-based investment decisions. A recent survey found that 17 percent of European pension schemes consider the financial impact of climate change in their investments, up from 5 percent in 2017.
It's still early days, and results are mixed. As risk communications consultant Richard Mahony recently wrote: "While the financial risks of climate change have been more widely acknowledged, there has been little change in the disclosures in company reports."
But bigger changes are inevitable. As companies start to dig deeper into reporting frameworks such as the Task Force on Climate-Related Financial Disclosures, or TCFD, questions around how to implement the recommendations are growing. Research by CDP and Marsh & McLennan Companies’ Global Risk Center (PDF) has identified that companies struggle with three key challenges:
- Securing leadership support for a wider approach to climate risks
- Overcoming siloed risk-management processes
- Limited experience with climate change scenario analyses.
We'll be addressing these and other challenges in the coming months, including at our GreenBiz 19 conference in February, where we'll focus on how to close the gap between company reporting and investor needs on climate risk. On another note, a friendly reminder: The nomination window for VERGE Accelerate, our fast-pitch competition for entrepreneurs, is closing July 30. More here.