Thought Piece

Elevating the S in ESG

Posted: 9 Aug 2022

Resource Type: Thought Piece

What must financial services companies do to elevate the “S” (social issues) in ESG to the same level as the “E”, to deliver impact for people, communities and wider society?  

In recent years, the role of the “S” in ESG has been brought into sharp focus for financial services companies. In the first panel of the day at the Finance for Impact Summit, Dr Kay Swinburne, vice chair of financial services at KPMG, led the discussion with a panel of senior industry representatives from Schroders plc, BNP Paribas, Aviva, Clayton, Dubilier & Rice and Phoenix Asset Management, who shared what their organisations are doing to champion the “S” in ESG.  

The panel session took its lead from the focus of KPMG’s new report, Finance for Impact: Industry-led Recommendations to Advance Finance for Social Impact, which was launched at the summit. The report analyses the challenges organisations are experiencing in delivering social impact, notably the difficulty of measuring it due to lack of data and standardisation, and how to define meaningful goals as well as acting on them. The global business advisory firm collected insights from more than 70 financial services firms to determine social responsibility best practice in both corporate activities, such as business, operational and supply chain, and capital allocation activities, covering investments, financing and lending.  

KPMG is now working with The City of London Corporation to progress the set of industry-led and industry-focused recommendations that will help enable Financial Services to scale finance for social impact.  

A key next step involves forming a taskforce of market leaders to build on the momentum and experience across the market. The report also calls on financial institutions to consider the levels of responsibility needed to take the recommendations forward and recognise the unique role they play in delivering impact, not least in increasing financial inclusion.  

The panel discussion helped set the scene for how the financial services industry is  placed to tackle the issues raised in the report: 

What aspects of the “S” are you currently focusing on? 

Andy Howard, head of sustainable investment at Schroders, pointed to several examples of the “massive effort” they had put into tackling social issues in recent years, including SustainEx, a tool that measures the impacts (positive and negative) a company is having on society and quantifies them economically. Other initiatives included the launch of Impact Investment Managers arm following the acquisition of BlueOrchard in 2019 and the Social Impact Trust launched with the Big Society Capital in 2020; as well as their natural capital solutions offering for clients.  

Dr Kay Swinburne from KPMG, Vindi Banga from Clayton Dubilier & Rice, Anne-Marie Verstraeten from BNP Paribas, Zelda Bentham from Aviva and Andy Howard from Schroders on the panel discussion

“Impact isn’t simply about discrete funds,” said Howard. “It’s about how we invest across the board.” He believed the industry was standing at the threshold of a new era where it would be characterised by and judged on how it dealt with risk, return and impact as the three pillars of good governance. “It’s about how we think of ourselves as asset managers, how we ensure we have a forward-looking view and understanding where we have the greatest impact.”  

Veteran investment banker Vindi Banga, partner at US private equity firm Clayton, Dubilier & Rice, shared the view that social impact should be something every investment company considered by default. “Our job is to improve on ESG wherever we invest. That’s our simple focus,” he said. “ESG is not something outside the business, it’s how you deal with supply chain and it’s what you do with your products.” Their particular focus was on improving the lives of their workforce, from being a fair employer to supporting personal growth. 

“We don’t ask our corporate partners to do any more than we think we should be doing ourselves,” said Zelda Bentham, head of sustainable investment at Aviva. In their view, investing in people was a natural extension of an insurance company’s role. She pointed to the fact Aviva was both a Living Wage and Living Hours employer and had a progressive staff benefits programme (which offers time off for infertility leave, for example), so that “colleagues can focus on the right part of their lives.” 

Anne-Marie Verstraeten, UK country head of BNP Paribas, said the banking group’s focus had shifted from improving sustainability (a journey which they began 15 years ago) to social issues. “The way we have done that is working with partners, local and global, we bring all this together with purpose of combatting financial exclusion,” she said. This has been achieved primarily by partnering with microfinance institutions and investing in inclusion enterprises. 

Anne-Marie Verstraeten

What are the key challenges faced by organisations? 

Improving transparency is a key theme to have emerged from KPMG’s consultation, whether it relates to metrics, frameworks or disclosures. And data, said Swinburne, “was at the core of it.” Howard agreed that there was “a lot more to do” in this area but cautioned that data should not be an excuse for inaction. “We are past the hurdle where lack of data or inconsistency is a blocker going forwards.”  

Sam Tufts, head of new assets at Phoenix, broadly agreed that lack of tangibility was a challenge with impact investing. Phoenix has therefore developed its own sustainability framework and devotes time into “finding the right data to make sure our investments have impact.” It allocates a large chunk of its private credit investments into projects that have concrete impact in energy, infrastructure and the housing sector – actively seeking out community projects across the UK.  

In view of the complicated nature of social impact, Banga had sound advice for investors beginning their journey. First, he said, identify the most relevant role for your business and your environment at that point in time and pick what you’re going to change. Then make sure that any policy reflects the UN’s Sustainable Development Goals (SDGs) and finally measure progress “internally and externally with complete transparency and honesty.”  

Dr Kay Swinburne

How can organisations and business leaders make a difference? 

Swinburne then brought the discussion to a close by asking the panel to summarise how business leaders and people can make an impact. Howard reiterated that investing for impact must not be treated “as a marketing or communications exercise” or it will fail. “Do it with integrity and honesty… Ask, ‘How as an organisation we can make a difference?’ and you’ll succeed.” 

Banga laid down the ground rules for scaling finance for social impact as transparency and the importance of verifying data. He also advised partnering especially with grass roots organisations and charities. “You can’t deal with these enormous challenges on your own. The bigger opportunity is to enlarge the pie, work outside the company.”  

“Make sure you use your influence for good,” summarised Bentham. “Whether it’s moving your pension or understanding where investments are going… It’s through stakeholder engagement that we will get there.” Anne-Marie Verstraeten concurred that the approach had to be both top down and bottom up. “Tap into energy and commitment of staff at your company,” she advised. “This is unique moment where everyone sees what needs to be done.”   

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