The ESG criteria : values that thrive
27 march 2023 By Florence for Private Banking 1859
Definition of the ESG criteria
Investors are increasingly opting for responsible companies. Some choose to prioritize the environmental criterion as a whole, while others focus specifically on climate change.
The Environmental criterion is determined based on a company’s environmental approach, including consumption of energy and natural resources, waste management, risks prevention, and levels of pollution produced (e.g., amount of CO2 released into the air, chemicals released into the water). Respect for animal life, particularly in the agricultural and pharmaceutical sectors, is also considered.
The Social criterion refers to the staff’s working conditions and health, as well as their sense of fulfillment. Is the company aware of the working conditions in its subcontracting chain? Are human rights protected? Are safety measures implemented to minimize the risks of accidents? Are civil liberties and the values of diversity, equity and inclusion reinforced?
The Governance criterion focuses on a company’s best practices in terms of accounting policies transparency and independence of its board of directors. Have any measures been applied to avoid conflicts of interest? The assessment is based on the quality and structure of the company’s management practices.
Profitability of responsible investments
The financial sector has long been hesitant: Is responsible investment not implicitly limiting? Indeed, there’s a persistent myth that portrays this type of investment as being less performing. Ulrich Atz, an economist and researcher at New York University’s Stern School of Business, has compiled more than a thousand pieces of official data showing that statistically, ESG investments can perform as well as or better than traditional investments, especially over the long term and in the sphere of low-carbon E strategies. Responsible investments can also prove safer during an economic or social crisis. According to Atz’s study, some sustainable investments performed better during the 2007–2009 financial crisis and recovered faster.
The privately owned company Patagonia, which Forbes2 hailed as having achieved complete mastery of the art of social and environmental impact, is a perfect example of these new trends. Over the past 10 years, the company has quadrupled its profits, as noted by TIME3 Magazine . But closer to home, the performances of determined investors in Montreal also stood out.
That is the case for Natalie Voland, founder and president of Gestion Immobilière Quo Vadis, a subsidiary of Quo Vadis Capital. A former social worker in the health care network, Natalie Voland is the leader of the B-Corp Movement in Quebec, which brings together the best of certified companies that promote social inclusion and environmental protection. Known as a visionary, courageous leader who stays true to her roots, Natalie has won several awards for her work dedicated to responsible and successful urban regeneration projects. She has also been invited to teach sustainable leadership for CEOs at Harvard University.
Last November, Quo Vadis Capital announced that it had obtained a loan from the National Bank of Canada for its revitalization project at the Complexe du Canal Lachine. The loan will be used to make energy-efficient technology investments. This urban planning project will be developed by Concordia University’s Next-Generation Cities Institute in Montreal. The main ambition is to help curb net greenhouse gas emissions.
The B-Corp certification takes after the U.K.’s BREEAM certification, the world’s most widely used evaluation method for high environmental quality buildings, attesting to a building’s environmental and energy performance. It also includes one of the most restrictive social clauses to date. Natalie says she is “extremely proud of this transaction.” Once again, the entrepreneur is illustrating her ability to attract capital with a conscientious real estate project based on the Triple-P approach (people, prosperity, planet).
Towards a sustainable economy: the central role of financial institutions
Financial actors around the world are pressured to meet increasingly ambitious targets for responsible investment and to make their actions match their words. New regulatory frameworks are constantly emerging from the transition to this economy, although imperfect still, to protect responsible investment and call for the active participation of stakeholders (employees, customers, suppliers, etc.).
In Europe, as of January 1, 2024, the new Corporate Sustainability Reporting Directive (CSRD) will require companies to disclose the content of their non-financial information to allow investors to make the most informed decisions. The law will also apply to large non-European companies operating in the European domestic market.
In Quebec, the IFRS Foundation, well known to the financial markets, officialized the creation of a branch of the International Sustainability Standards Board (ISSB) in Montreal (the head office is in Germany) at COP26. This first presence in North America supports the ESG standards’ robustness and monitoring efforts. Responsible investment is conscientiously progressing, gradually requiring a profound transformation of the world of finance and business models.
Although she is aware of her role as a pioneer in ESG investments, Natalie Voland also knows how big of a role financial institutions play in this responsible economy: “This loan allows us to pave the way for financial institutions to play an even greater role in ESG-based real estate development.”
This is confirmed by the National Bank, which financed the loan: “The National Bank is committed to help its clients make the energy transition. The carbon neutral transition loan granted to Quo Vadis Capital for the complete revitalization of the Complexe du Canal Lachine is a perfect example,” said Laurent Ferreira, National Bank’s President and Chief Executive Officer.
There are many upsides to investing responsibly. Not only is it proven to be profitable in the long term and safer in times of crisis, but the management structure of the company itself (the G factor) also inspires the confidence of investors and consumers: more transparency, more reliability, a sound financial situation sheet based on sound practices. It all adds up to a quality guarantee that is protected by new institutional guidelines. The world of large companies is transforming and maturing consciously towards a sustainable economy. The notion of eco-responsible investment is here to stay.
1 Ulrich Atz, an economist and researcher at New York University’s Stern School of Business, has meticulously compiled more than 1,000 pieces of official data: https://www.tandfonline.com/doi/abs/10.1080/20430795.2022.2106934
3 https://time.com/5684011/patagonia/