The Board and ESG

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sustainability concept

Next Up On The Board Agenda Is Sustainability

ESG (Environmental, Social and Governance) challenges are increasingly positioned at the top of board agendas; financial institutions, as potential facilitators of financial transactions with ESG-focused companies and as responsible corporate citizens, may be at the forefront of these issues. The challenges are becoming more and more important for boards of directors as well as the companies themselves. The term ESG brings to mind environmental issues such as climate change and resource scarcity. ESG also covers issues like a company’s labor practices and product safety as well as governance issues like board diversity and executive pay.

In the past these issues were not always the main focus of boards of directors as corporate boards concentrated mainly on delivering a return to their shareholders. That is until 2018 when BlackRock, a global investment management corporation, decided to take a stand on sustainable investment. Back in January 2018, BlackRock’s CEO Larry Fink published a letter urging the private sector to not only focus on maximizing shareholder value but to also include a focus on societal impact.

Two years later, BlackRock was determined to focus on its commitments to ESG. In January 2020 BlackRock announced that environmental sustainability would now be a cornerstone of its investment approach. During this time, Fink wrote “Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”

This highlights the importance for boards of directors to address ESG challenges and consider implementing ESG strategies on behalf of their shareholders.

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