ESG and Sustainability Trends

Strong governance trends continue to gain momentum increasing the need to review and potentially upgrade testing of ESG claims, data privacy and business ethics controls.

• Larry Fink’s annual CEO letter entitled A Fundamental Reshaping of Finance has sparked debate. We expect ESG assets to continue to grow in 2020. Accordingly, the importance of ESG compliance will too, especially as the topic remains an SEC exam priority. For example, the CEO letter shows the importance of understanding ESG claims and the search for common principles and standards. Potentially we will see an increase in reliance on SASB or similar standards. Mr. Fink stated: “While no framework is perfect, BlackRock believes that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics.”
• Also upping the ante on environmental, social and governance causes is MSCI. It rolled out formal principles of sustainable investing, commenting that ESG should be central to the investing process. Complexity and confusion may continue as others join this effort.
• While implementing ESG processes, we believe it is prudent to look beyond just the reports. The need for business and investment decisions to be made on accurate and fulsome information also reminds us that marketing and advertising standards, as well as anti-fraud investment concepts, will remain paramount. Read more at HBR Why Not to Rely on Sustainability Reports Alone.