During a time in which health, racial, social justice, and environmental concerns have become too pressing to ignore, there is growing momentum around stakeholder capitalism. Alongside it comes a new focus on ESG: environmental, social, and governance considerations.
This interest is coming from multiple directions. As a simple example, investors poured a record $21.5 billion into mutual funds with an ESG focus in the first quarter of 2021, more than double that of 2020.
My guest on the Workday Podcast is Giulia Siccardo, associate partner at McKinsey and Company, where she focuses on sustainability issues. She discusses trends in ESG, what the evolving need to report on ESG means, and what leaders—especially finance leaders—should be doing around these concerns.
Here are highlights of our conversation, edited for clarity. Be sure to follow us wherever you listen to your favorite podcasts, and remember you can find our entire podcast catalog here.
“ESG is really top of mind for our clients, and it’s a topic that has the CEOs’ attention. They are taking ESG very seriously, and increasingly we're getting more and more interest in embedding ESG across corporate operations, rather than just keeping the responsibility siloed in one function. And I think that speaks to how this area is really maturing in corporate practices.”
“ESG performance reveals how much risk is tied up in your corporate operations, whether you're talking about climate risk, transition risk, or reputational risk. It also shows how much opportunity a company might have to enjoy long-run growth. And this is all truly material information for investors.”
“There are multiple sources of value that can be uncovered by close management of ESG. For example, we find that 70% of Gen Z consumers would pay upward of a 5% premium for values-aligned products and services. From a risk perspective, for policy or regulatory transition risk, we find that about 30-50% of EBITDA is at stake some ESG-related shifts.”