NOVEMBER 2023
Finance Monthly. Editor’s Note Dear Readers, As we move through another month in finance, the latest issue of Finance Monthly provides insights that capture the ongoing changes in our industry. At the heart of this edition is a ‘pioneering vision,’ which seeks to probe deeper into the crossroads where traditional financial paradigms meet emerging trends. Our exclusive interview with Dr. Michael Nates highlights the intersection of executive coaching with ESG principles – a testament to the integration of ethical practices within the leadership framework. As the world grapples with economic uncertainties, our deep dive into the repercussions of economic downturns showcases the profound impact on mental health – a dimension often overshadowed by fiscal discussions. Shining a light on the looming horizon, we explore the Future of Work. With technology transforming every facet of our professional lives, the intriguing question arises: Could cryptocurrency redefine our salary structures? Dive into our analysis of whether crypto could indeed change the way we get paid. For our astute readers, the intricacies of financial planning have never been more pertinent. We present strategies for wealth management that are tailormade for these unpredictable times. As the adage goes, it’s not about how much money you make, but how you invest it. Our features on startup investments and pension planning offer a comprehensive guide for both seasoned and young investors. Finally, our front cover is an exciting look at how corporations can measure their investment in ESG to remain transparent and forward-thinking. As we curate these stories, our commitment remains to equip you with knowledge, to empower your financial decisions. Whether you’re planning for the future or navigating present challenges, Finance Monthly is your trusted companion on this journey. Mark Palmer Editor editor@finance-monthly.com Follow us on Instagram Financemonthly Find us on Facebook Finance Monthly Stay Connected www.linkedin.com/finance-monthly Tweet us @Finance_Monthly Universal Media Ltd PO Box 17858, Tamworth, B77 9QG United Kingdom 0044 (0) 1543 255 537 Copyright 2023 Published by Universal Media Ltd The views expressed in the articles within Finance Monthly are the contributors’ own, nothing within the announcements or articles should be construed as a profit forecast. All rights reserved. Material contained within this publication is not to be reproduced in whole or part without the prior permission of Finance Monthly. Circulation details can be found at www.finance-monthly.com Monthly Finance 3
Finance Monthly. Contents 4 CONTENTS FRONT COVER FEATURE 18. THE ESG SCORECARE Evaluating Business Sustainability and Ethics
Finance Monthly. 5 Contents 66. WHAT DOES IT TAKE TO DEVELOP A DIGITAL BANK? THE MONTHLY ROUND-UP News You Can’t Afford to Miss 6. 26. BUSINESS 26. 32. 36. 40. A Pioneering Vision The Intersection of Executive Coaching and ESG Principles An Interview with Dr. Michael Nates Economic Downturns and the Impact on Mental Health The Future of Work Could Crypto Change the Way We Get Paid? Financial Planning: Strategies for Wealth Management in Uncertain Times INVESTMENT Seeding the Future: Navigating the Risks and Rewards of Startup Investments Best Ways to Invest Your Pension Ways to Invest as a Young Adult 44. 48. 52. FINANCIAL INNOVATION & FINTECH Why FinTech is the Solution the Global Economy Needs to Thrive Crypto Influencers Curse or Blessing? What Does it Take to Develop a Digital Bank? 58. 62. 66. A PIONEERING VISION The Intersection of Executive Coaching and ESG Principles An Interview with Dr. Michael Nates 44. Navigating the Risks and Rewards of Startup Investments SEEDING THE FUTURE
Finance Monthly. 6 THE MONTHLY ROUND-UP News You Can’t Afford to Miss The Monthly Round-Up The annual Global Finance Trends Survey, conducted by global consulting firm Protiviti, finds that the pressure to implement and report on organization-wide ESG programs has intensified for CFOs, with 60% of finance leaders indicating a substantial increase in the focus and frequency of their reporting related to ESG issues. Year over year, ESG metrics and measurement have jumped up the priority list, with CFOs and VPs of Finance noting it as their top priority in 2023, compared with it ranking in the 11th position just last year. In fact, 57% of publicly held and 40% of privately held companies report that measuring and reporting ESG risks and issues has become part of their finance team’s role in the last year. CFOs and finance leaders are preparing for a global wave of ESG-related regulatory requirements, including the already-enacted Corporate Sustainability Reporting Directive (CSRD) in the European Union (EU) and expected climate impact reporting requirements for U.S. public reporting companies from the U.S. Securities and Exchange Commission (SEC). As the magnitude of these new requirements becomes apparent, finance teams continue to prepare: 52% of privately held organizations and 62% of publicly held organizations consider themselves ready for new required ESG disclosures. “While the term ‘ESG’ has become a hot button issue for some, stakeholder demands and regulatory reporting requirements aren’t going away, leading CFOs and finance leadCFOS RANK ESG METRICS AND MEASUREMENT AS THEIR TOP PRIORITY, FINDS LATEST PROTIVITI GLOBAL FINANCE TRENDS SURVEY
Finance Monthly. 7 The Monthly Round-Up ers to adapt as the ESG reporting landscape continues to evolve quickly, with priorities differing vastly across industries and geographies,” said Christopher Wright, global leader of Protiviti’s Business Performance Improvement solution and sponsor of the firm’s ESG client services steering committee. “Along with the need for finance leaders to meet ESG-related reporting demands globally, our survey also finds the underlying issues that ESG commitments strive to address continue to command the attention of finance leaders and organizations over the next 12 months and beyond.” Top 10 Priorities In the survey of over 900 global finance leaders, including CFOs, vice presidents, directors and managers, conducted in the second and third quarters of 2023, participants ranked their priorities for the coming year. The results shown above indicate the top 10 finance priorities. The survey also found that the impact of inflation is weighing heavily on finance teams, a concern rising to second priority from the 6th spot in 2022. Combined with a focus on financial planning and analysis as well as profitability reporting and analysis, finance teams are reinforcing cost optimization measures in response to an uncertain global economy. Organizations are exploring generative AI to drive productivity and performance to counteract the escalation of challenges for the finance function. Of the finance functions surveyed, 63% of publicly held and 39% of privately held organizations currently use generative AI. Among organizations employing this technology, almost half (49%) are utilizing it for compliance and regulatory reporting, 45% are focusing on risk assessment and management and 37% are using it for financial forecasting. “As the number of priorities for finance leaders increases, they are forced to make high-stakes decisions by reacting quickly to a constant stream of evolving regulatory requirements,” said Wright. “CFOs and their teams rely on technology and data resources to mitigate these pressures and devise strategic responses to complex challenges.” 2023 Rank 2022 Rank 1 ESG metrics and measurement 14 2 Impact of inflation 6 3 Financial planning and analysis 2 4 Profitability reporting and analysis 7 5 Security and privacy of data 1 6 Strategic planning 3 7 Enhanced data analytics 9 8 National tax changes 18 9 Cloud-based applications 4 10 Routine reporting and closing activities 8
8 Finance Monthly. The Monthly Round-Up UNILEVER ANNOUNCES ACTION PLAN TO REIGNITE GROWTH Unilever, the maker of Ben & Jerry’s ice cream and Marmite, has announced its third quarter results and an ‘Action Plan’ to boost performance: Underlying sales growth of 5.2% with prices increasing by 5.8% and volumes declining by 0.6%. The group has left its 2023 guidance unchanged targeting underlying sales growth of above 5% with a modest improvement in underlying operating margin. New CEO, Hein Schumacher announces an ‘Action Plan’ to boost growth and productivity. Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club, commented: “This is another drab quarter from Unilever with underlying sales growth being entirely led by higher prices and volume declines accelerating in the quarter. Europe was particularly weak with volumes falling by over 10%, and the percentage of Unilever’s business winning market share on a rolling 12 month-basis fell to a disappointing 38%. Unilever’s new CEO, Hein Schumacher, recognises that the group could and should be doing better. His ‘Action Plan’, announced today, is designed to reinvigorate performance through more impactful innovation, productivity savings and an improved culture. Schumacher’s mantra is “fewer things, done better, with greater impact”. This means prioritising the top 30 Power Brands, instilling greater accountability and simplifying the business. For too long, Unilever has been too slow-moving, too complex and too weighed down by too many mediocre brands. A strategy to simplify and refocus on core strengths, perhaps augmented by some non-core brand disposals, feels like the right way to go. From here it’s all about the execution. Anyone can talk a good game with pretty PowerPoint slides, but actually doing it is quite another matter. Unilever’s previous strategy updates promising greater agility, productivity and innovation ultimately didn’t really deliver. This Action Plan feels like it has more substance, but the proof will be in the pudding.”
9 Finance Monthly. The Monthly Round-Up VISA AND LLOYDS BANK PARTNER TO LAUNCH NEW VIRTUAL CARD SOLUTION Visa, a world leader in digital payments, has partnered with Lloyds Bank to launch the next generation virtual card solution for businesses of all sizes. Available now to Lloyds Bank customers, Visa Commercial Pay addresses businesses’ payments and purchasing administration challenges, such as controlling spend, simplifying processes, reconciling invoices, and reporting on expenditure. Offering many practical benefits to businesses and their employees, the new solution enables efficient online purchasing by instantly issuing virtual cards. Employees can request a virtual card for their business-related purchases, whether it be contracted or ad-hoc spend, subscription payments or business travel. The virtual cards – which can be single or multi-use – adopt existing approval workflows and include the business’s own unique reference fields. They can be issued individually or by batch and offer real-time control, allowing business administrators and managers to closely manage spending within their teams. Controls can be applied to enable where, when, what and who can be paid. Mandy Lamb, Managing Director, UK & Ireland, at Visa, commented: “Visa Commercial Pay is a next generation payment platform that provides the technology to help businesses simplify and streamline the way they make payments, all in a secure and controlled way. We’re delighted to launch this in the UK in partnership with Lloyds Bank, delivering seamless payment experiences for UK businesses.” James Sykes, Head of Commercial Cards at Lloyds Bank, also commented: “We’re proud to have partnered with Visa and to be the first in the UK to launch Visa Commercial Pay to customers. We’ve worked hard to create a solution that offers a secure, simplified process that enables businesses to pay their suppliers earlier while protecting their working capital.” Jon Helyer, Director of Financial Control, Smart DCC, added: “Lloyds Bank’s VCP solution enables us to make transactions, with the necessary approvals by budget holders, quickly and securely, and simplifies reconciliation as we can code them accurately and attach evidence too. The system, which was configured by the Lloyds Bank Commercial Cards team, is very simple to use and full training was provided before we went live. The enhanced security of Virtual Cards also means there is no need for additional One Time Passcodes and so online transactions are easier to process.”
10 Finance Monthly. The Monthly Round-Up PAYSEND ANNOUNCES AGREEMENT WITH WESTERN UNION TO BOLSTER GLOBAL MONEY TRANSFER SERVICES Paysend, a card-to-card and international payments platform, today announced an agreement with Western Union to provide seamless and efficient cross-border money transfer capabilities. Paysend’s integration with Western Union will enhance consumers’ ability to send funds using Western Union’s branded digital solution directly to Visa and Mastercard debit cards. Abdul Abdulkerimov, Executive Chairman and Co-Founder of Paysend, expressed his excitement about the collaboration, saying, “Paysend’s mission is to make money transfer easier for everyone. We are thrilled to join forces with Western Union, a company known for its global reach and commitment to financial inclusion. Together, we will empower millions with accessible cross-border money transfer services.” In 2022, the World Bank reported that remittances grew 5% to over $800 billion, playing a crucial role in sustaining communities and fuelling economic growth. Paysend’s single API solution ensures seamless processing of Western Union customer payments direct to Visa and Mastercard debit cards, delivering near-instant payouts at live FX rates, 24/7, 365 days a year. “Western Union and Paysend share an unwavering commitment to place our customers first, while providing an exceptional experience when sending money to friends and family,” said Sheryl McKenzie, Chief Product Officer, Western Union. “This agreement gives our customers more choice, convenience, and access to affordable financial services, at the same time, helping build better lives for countless people around the world.” The two organisations recently launched an initial pilot program with the ability to send money from the U.S. and the U.K. to Pakistan, the U.K. and Spain. Plans include adding additional countries in the near future. This partnership marks the latest development in an active period for Paysend, following the announcement of network expansions with Visa and Mastercard in September.
11 Finance Monthly. The Monthly Round-Up TRIPLE POINT AND INNOVA AGREE £40 MILLION DEBT FACILITY Triple Point, the purpose led investment manager and Innova, the renewable energy business, have agreed a debt facility of up to £40 million to support Innova’s accelerated growth in UK Solar and Energy Storage Systems (ESS). This latest facility builds on the long-standing partnership between Triple Point and Innova, which began in 2017 when Triple Point provided debt funding for operational subsidised solar assets owned by Innova. The latest £40 million debt facility will provide funding to support a diverse range of projects, from those at an early stage of development through to those ready to build. Innova develops, builds, and operates a range of innovative, environmentally sustainable, long-term renewable energy solutions. The company holds one of the UK’s largest portfolios of renewable energy generation sites - with over 60 Distribution Network Operators (DNO) and National Grid connected sites under development in the UK that have a combined solar and storage capacity in excess of 24GW. Innova’s long-term mission is to create utility-scale renewable energy projects using multi-technologies that take large energy intensive users off-grid, positively improving the environment, and benefiting local businesses and communities. Steve Gordon, Head of Corporate at Triple Point commented; “We have a strong, long-standing relationship with Innova, and this significant deal represents an exceptional opportunity – supporting the acceleration of the energy transition industry and backing one of the UK’s leading operators.” Daniel Mushin, Investment Director at Innova said: “This facility with Triple Point represents an exciting milestone in Innova’s mission to help the UK meet its Net Zero targets by providing significant funding towards our accelerated growth in UK Solar and ESS. We are delighted to continue our collaboration with Triple Point on this facility, and we look forward to seeing how our already long-standing relationship continues to develop for the future.” Innova Carn Nicholas - May 2023 Steve Gordon Daniel Mushin
12 Finance Monthly. The Monthly Round-Up ARCANO PARTNERS LAUNCHES NEW INVESTMENT STRATEGY FOCUSED ON AIR TRANSPORT ASSETS Arcano Partners has launched a new investment vehicle specialising in transportation assets with a particular focus on the global aviation sector. Specifically, the firm has developed this new private equity investment vehicle, Arcano Aviation Fund, PEF whose strategic focus is to invest in longterm income assets with strong performance counterparties. These assets are characterised by their long lives, their de-correlation to other traditional financial assets, as well as the generation of stable and predictable cash flows. The new fund has a fundraising target of approximately EUR 100 million and is aimed primarily at institutional investors and private banking clients. In addition, the possibility of incorporating other complementary vehicles is also envisaged, so that the total investment could reach up to €150 million. Andbank will participate in the distribution of the Fund among its private banking clients. The Arcano Aviation Fund, FCR will be managed by a team specialised in transport asset finance. This group of experts has ex-
Finance Monthly. The Monthly Round-Up 13 tensive experience in the full investment cycle managing and structuring the investment of over €1 billion of capital with an asset value of approximately €5 billion in the transport sector. Its most recent experience includes investing in a diversified portfolio of 12 commercial aircraft leased to leading international airlines such as Delta Airlines and Qatar Airways. Positive growth prospects for a sector with a stable historical development Despite being one of the sectors that suffered the most during the Covid-19 pandemic, it has also been one of those that has recovered the best, especially in these last months of 2023 where it has become clear that it is a resilient sector that already exceeds the levels of demand recorded in 2019. The long useful life of these real assets (more than 25 years) and their ability to move to any part of the world to continue their operation make them a predictable asset with very stable cash flows over the long term. Likewise, they have historically shown a very uncorrelated behaviour with respect to other more traditional assets. The current context, marked by delays in the global supply chain, has led to a deferral of aircraft deliveries to airlines and lessors, which in turn has strongly supported asset valuations, thereby improving the collateral they provide for these investments. Despite the timely delay, the outlook for aircraft fleet growth is very positive and is expected to double over the next 20 years to more than 46,500 by 2042 according to figures provided by the two main manufacturers Airbus and Boeing. Jon Garaiyurrebaso, Managing Partner of Arcano Asset & Capital Finance, has indicated that “investment in this type of assets is increasingly in demand among investors. Arcano Aviation Fund, FCR will follow a conservative investment strategy based on (i) geographic diversification, by asset type and counterparty, (ii) by the selection of liquid assets and (iii) the search for solid long-term counterparties.” Miguel Cacho como nuevo Managing Director de Arcano Capital SGIIC, S.A.U., ha señalado que “el Miguel Cacho, as the new Managing Director of Arcano Capital SGIIC, S.A.U., said: “The aviation sector has shown a spectacular recovery in recent months, reaching levels of demand similar to 2019. We have strong relationships in the market that allow us to have differential access to a large number of investment opportunities in this segment.” About Arcano Arcano Partners, founded in 2003, is an independent global firm with more than 20 years of experience in international financial advisory and asset management. Arcano Partners currently has four business areas: • Alternative Asset Management, with €10 billion managed and advised since the start of its activity in 2006, and with five asset classes: Private Equity, Credit Strategies, Real Estate, Sustainable Infrastructure and Venture Capital; Arcano has a strong focus on sustainability and responsible investment, being one of the benchmark asset managers in ESG. • Investment Banking, providing advisory services in M&A, refinancing, restructuring and capital markets transactions to companies in various sectors; Arcano has teams specialised by sector, and additionally offering a cross-sector technology/digital approach. • Arcano Research provides economic, real estate and differential market analysis, as well as geopolitical and technological analysis of both local and global trends. This analysis is extremely useful for optimising company decisions, especially in environments of extreme uncertainty where the impact of making mistakes is profound and can be mitigated by investing in quality analysis. • Arcano Asset & Capital Finance, an area that allows investors to participate in the creation of solutions for the financing of real or intangible assets in Spain, under a stable regulatory framework and under a very solid investment structure in terms of risk protection. Arcano has a team of more than 230 professionals of more than 16 nationalities, with 7 offices in Europe and the United States, and has become one of the independent firms of reference in the European alternative finance market.v
Finance Monthly. The Monthly Round-Up 14 2024 FINTECH PREDICTIONS: AI BUBBLE TO BURST, QR PAYMENTS TO EXPLODE, RECKONINGS FOR REGULATORS Data-driven core banking engine SaaScada, today released its predictions for 2024, offering insights for the financial services (FS) industry: Fintech’s AI bubble will pop Nelson Wootton, CEO and Co-Founder, SaaScada “Klarna’s declaration that they’re going ‘all-in’ on AI represents the mood of the financial services industry, with even legacy financial and banking players touting AI capabilities in their future offerings. “Next year, however, executives and investors are going to wake up to an ugly truth: most banks are years away from having the data needed to train and deploy effective generative AI models. Most deployed AI solutions in finance are repackaged old tech, and these can’t hope to meet the sky-high expectations set in 2023. This will mean, in 2024, fintech’s AI bubble is going to pop.” The battle between card and QR payments will heat up in Europe Steve Round, Co-Founder, SaaScada “More European banks will ramp up QR payment offerings in 2024, cutting out card payment rails like Visa and MasterCard to save on associated costs. Next year, we should expect card providers to start pursuing legal action to protect their positions, and they may even threaten banks with abrupt removal of their card facilities. To better compete against card providers, banks may investigate more robust consumer protection for QR payments – such as the right to chargebacks and refunds consumers have with credit card purchases.” We’ll see if Consumer Duty has any teeth Nelson Wootton, CEO and Co-Founder, SaaScada “We’ve yet to hear of the FCA making any high profile attempts at enforcing the Consumer Duty rules which came into force in mid-2023. This makes 2024 a critical year for the rules: if the FCA doesn’t announce any investigations or fines next year for breach of the rules, they’ll likely end up being regarded as toothless in the eyes of the industry. If the FCA does step up, however, the company they target will signal which parts of the FS scene are in the regulator’s crosshairs.” Fintechs will be asked to help standardise ESG reporting Steve Round, Co-Founder, SaaScada “In 2024, most companies will have completed at least one annual report disclosing some key ESG indicators: such as their diversity targets, or Scope 1, 2 and 3 greenhouse gas emissions. Many of these disclosures will be impenetrable and unstandardised. To try to avoid this trap in the future, many investors and businesses will be looking to standardise their ESG reporting frameworks in 2024 – and will, in turn, look to banks and fintechs to create the platforms to facilitate this.” FCA will be called on to overhaul the mortgage market Steve Round, Co-Founder, SaaScada “Many people will continue to face hikes in their mortgage payments and rents as the effects of higher interest rates continue to trickle throughout the economy. To prevent families from losing their homes, we’ll likely see the FCA come under pressure from industry and government to relax its limits on mortgage terms, allowing providers to offer 50-year mortgage products – or even more. These products aren’t without precedent, with Japan having experimented with 100year mortgages at the peak of its property bubble in the 1980s.”
Finance Monthly. The Monthly Round-Up 15 GLOBAL STARTUP ACCELERATOR, ZEBOX, OPENS IN MANCHESTER TO DRIVE SUSTAINABLE INNOVATION Global startup accelerator, ZEBOX opened the doors of its UK hub in Manchester yesterday as it continues its ambition to support and develop the sustainable innovations of tomorrow. The UK hub, based on Portland Street, Manchester and launched by Mayor of Greater Manchester, Andy Burnham, becomes the sixth innovation hub for the accelerator founded in 2018 by Rodolphe Saadé, Chairman and CEO of the CMA CGM Group, a global player in sea, land, air and logistics solutions. The hub will accelerate decarbonisation and operational optimisation through technological breakthroughs in the supply chain industry, especially artificial intelligence. It joins ZEBOX’s headquarters in Marseille, France, and hubs in the Caribbean (Guadeloupe), Ivory Coast, USA and Asia Pacific region (Singapore). Globally, the initiative has already worked with over 250 startups and 20 corporate leaders, and has facilitated more than 340 collaborations. The hub will support the UK and Northern Europe’s most promising startups and connect them with corporate partners across ZEBOX’s global community enabling them to test innovative solutions and address business and sustainability challenges across supply chain and logistics. Meanwhile, corporate partners will benefit from working with startups that can address specific business issues and engage in de-risked proof of concepts. ZEBOX UK will also offer entrepreneurs mentoring and funding, with the aim of co-developing startups producing game-changing solutions across four key areas: operational efficiency, assets optimisation and decarbonisation, workflow automation, and future of work. The first ZEBOX UK cohort consists of 10 startups working in the fields of AI, machine learning, quantum computing and decarbonisation. Greater Manchester has fast become one of the UK’s dominant tech hubs, with the city-region outperforming much European larger cities for investment and business growth. Its vibrant, innovative and fast-growing start-up scene has also seen record levels of investment funding in recent years. It is also well respected as a leading city for sustainable blueprints, as it aims to become carbon neutral by 2038 – 12 years ahead of the UK’s overall target. Martin Bremner, MD at ZEBOX UK, said, “Our mission at ZEBOX is to connect the entrepreneurial spirit and innovation of startups with the expertise and global impact of corporate leaders. This not only enables them to accelerate growth but to answer global challenges together by developing the sustainable solutions of tomorrow. CMA CGM and ZEBOX UK look forward to creating the premier hub of innovation for supply chain and logistics in the United Kingdom,here in Manchester, a region which is an integral part of the UK’s sustainability drive.” Leader of Manchester City Council, Bev Craig said, “ZEBOX’s choice of Manchester as the location for its UK hub reflects the city’s track record for innovation and sustainability. We hope that the future-facing work the startups based here will develop will have wider benefits through decarbonisation - supporting the battle against climate change - as well as creating jobs and investment.” Joe Manning, Managing Director at MIDAS, Manchester’s Inward Investment Agency said, “This investment from ZEBOX UK is an invaluable addition to our lively business scene. With brilliant businesses such as these adding to our city-region’s strengths in sustainability, logistics and tech, we’re demonstrating our collaborative cross-sector strengths that have a real impact on the UK economy and beyond.”
Front Cover Feature 18 Finance Monthly.
In today’s world, Environmental, Social, and Governance (ESG) metrics have gained significant importance. They provide valuable insights into the sustainability and ethical practices of companies, enabling investors and stakeholders to make informed decisions. Understanding the significance of ESG metrics is crucial in fostering responsible investment practices and driving positive change. THE Finance Monthly Understanding the Importance of ESG Metrics ESG metrics serve as a comprehensive framework for evaluating a company’s performance in key areas related to sustainability and responsible practices. They help identify potential risks, opportunities, and impacts on the environment, society, and corporate governance. By incorporating ESG metrics into investment strategies, investors can align their portfolios with their values and support companies that uphold sustainable practices. When it comes to evaluating a company’s sustainability practices, ESG metrics provide a holistic view. These metrics go beyond traditional financial measures and delve into environmental, social, and governance factors. By considering ESG metrics, investors gain a deeper understanding of a company’s impact on the world and can make more informed investment decisions. For example, environmental metrics may include a company’s carbon emissions, water usage, and waste management practices. Social metrics may encompass employee diversity, labor practices, and community engagement. Governance metrics, on the other hand, assess a company’s leadership structure, executive compensation, and transparency. EVALUATING BUSINESS SUSTAINABILITY & ETHICS Finance Monthly. Front Cover Feature 19
Front Cover Feature 20 Finance Monthly. The Role of ESG Metrics in Sustainable Investing Sustainable investing aims to generate long-term financial returns while positively impacting the environment and society. ESG metrics play a crucial role in this approach, as they provide a standardized and measurable way to assess companies’ sustainability practices. By considering ESG metrics, investors can allocate capital towards companies that demonstrate strong environmental stewardship, social responsibility, and effective corporate governance. Investors who prioritize sustainable investing recognize that companies with robust ESG practices are better positioned for long-term success. These companies are often more resilient to environmental and social risks, as they have implemented strategies to mitigate potential negative impacts. By investing in such companies, investors can contribute to a more sustainable future while potentially achieving competitive financial returns. Moreover, the incorporation of ESG metrics into investment strategies has gained significant momentum in recent years. Institutional investors, such as pension funds and asset managers, are increasingly integrating ESG considerations into their decision-making processes. This shift reflects the growing recognition that sustainable investing is not only morally responsible but also financially prudent. How ESG Metrics Influence Corporate Decision Making ESG metrics are not only relevant for investors but also guide corporate decision making. Companies that prioritize sustainability and responsible practices can enhance their reputation, attract investors, and mitigate potential risks. ESG metrics serve as a benchmark for companies to assess their performance, identify areas for improvement, and align their strategies with sustainability goals. By incorporating ESG metrics, companies can contribute to a more sustainable future. When companies prioritize ESG metrics, they signal to stakeholders that they are committed to long-term value creation and responsible business practices. This commitment can attract socially conscious investors who are increasingly seeking companies that align with their values. By meeting ESG standards, companies can also strengthen relationships with customers, employees, and regulators, leading to enhanced brand reputation and customer loyalty. Furthermore, ESG metrics provide companies with valuable insights into their operations, enabling them to identify inefficiencies, reduce risks, and seize opportunities. For example, by measuring and reporting their carbon emissions, companies can identify areas for improvement and implement strategies to reduce their environmental impact. This not only benefits the planet but also helps companies enhance operational efficiency and reduce costs. In conclusion, ESG metrics play a vital role in evaluating a company’s sustainability practices, guiding investment decisions, and influencing corporate decision making. By considering ESG factors, investors can align their portfolios with their values and support companies that prioritize sustainability. Likewise, companies that prioritize ESG metrics can enhance their reputation, attract investors, and contribute to a more sustainable future. As the importance of sustainable practices continues to grow, ESG metrics will remain a critical tool for assessing and promoting responsible business practices. Key Components of ESG Metrics ESG metrics encompass a wide range of factors that evaluate a company’s performance in key areas. These factors can be broadly classified into three categories: environmental, social, and governance. Each category plays a crucial role in determining a company’s overall sustainability profile. Environmental Factors in ESG Metrics Environmental factors assess a company’s impact on the environment. These metrics evaluate resource consumption, greenhouse gas emissions, waste management practices, and efforts Companies that prioritize ESG metrics can enhance their reputation, attract investors, and contribute to a more sustainable future.
Finance Monthly. Front Cover Feature 21 towards reducing carbon footprint. By measuring and improving environmental practices, companies can contribute to mitigating climate change and promoting sustainable development. Resource consumption is a critical aspect of environmental factors. It involves evaluating how efficiently a company uses natural resources such as water, energy, and raw materials. By implementing innovative technologies and adopting sustainable practices, companies can minimize resource consumption and reduce their ecological footprint. Greenhouse gas emissions are another important environmental factor. Companies are evaluated based on their carbon dioxide, methane, and nitrous oxide emissions. By implementing emission reduction strategies, such as investing in renewable energy sources and improving energy efficiency, companies can contribute to global efforts in combating climate change. Waste management practices also play a significant role in environmental factors. Companies are assessed on their waste generation, recycling efforts, and disposal methods. Implementing effective waste management systems, such as recycling programs and waste reduction initiatives, can help companies minimize their environmental impact and promote a circular economy. Social Factors in ESG Metrics Social factors focus on how a company interacts with its employees, customers, communities, and other stakeholders. Metrics in this category include diversity and inclusion, labor practices, human rights, community engagement, and product safety. By prioritizing social factors, companies can foster a positive corporate culture, build strong relationships with stakeholders, and address social challenges effectively. Diversity and inclusion are crucial aspects of social factors. Companies are evaluated based on their efforts to promote diversity in their workforce, including gender, race, ethnicity, and age. By embracing diversity and creating an inclusive work environment, companies can benefit from a wide range of perspectives, enhance creativity and innovation, and foster a sense of belonging among employees. Labor practices are also important social factors. Companies are assessed on their adherence to fair labor standards, including minimum wage, working hours, and workplace safety. By ensuring fair and safe working conditions, companies can protect the rights and well-being of their employees and contribute to sustainable economic development. Community engagement is another key social factor. Companies are evaluated on their involvement in community development initiatives, philanthropy, and support for local businesses. By actively engaging with communities, companies can build trust, enhance their reputation, and contribute to the social and economic well-being of the areas where they operate. Governance Factors in ESG Metrics Governance factors assess a company’s internal control systems, leadership, and ethical standards. These metrics analyze board structure, executive compensation, transparency, risk management practices, and anti-corruption measures. By maintaining strong governance practices, companies
22 Finance Monthly. Front Cover Feature can enhance trust, integrity, and accountability, reducing the potential for unethical behavior. Board structure is a critical aspect of governance factors. Companies are evaluated based on the composition and independence of their board of directors. By having a diverse and independent board, companies can ensure effective oversight, strategic decision-making, and alignment with stakeholders’ interests. Executive compensation is another important governance factor. Companies are assessed on the fairness and transparency of their executive pay practices. By aligning executive compensation with longterm sustainable performance and shareholder interests, companies can promote responsible and ethical behavior at the top level of management. Transparency is a key element of governance factors. Companies are evaluated on the clarity and completeness of their financial reporting, as well as their disclosure of non-financial information. By providing transparent and reliable information, companies can enhance investor confidence, facilitate informed decision-making, and promote market efficiency. Risk management practices are also crucial governance factors. Companies are assessed on their ability to identify, assess, and manage risks effectively. By implementing robust risk management systems and processes, companies can minimize potential disruptions, protect shareholder value, and ensure long-term sustainability. Anti-corruption measures play a significant role in governance factors. Companies are evaluated on their policies, procedures, and controls to prevent bribery, fraud, and other corrupt practices. By fostering a culture of integrity and implementing anti-corruption measures, companies can maintain their reputation, build trust with stakeholders, and contribute to a fair and transparent business environment. Measuring ESG Performance Measuring Environmental, Social, and Governance (ESG) performance is essential for investors and companies alike. It allows them to gauge progress, benchmark against peers, and drive continuous improvement. By evaluating ESG metrics effectively, stakeholders can make informed decisions that align with their values and long-term sustainability goals. When it comes to measuring ESG performance, various tools and techniques are available. These tools provide standardized metrics and assessments, enabling investors to compare companies’ ESG performance and make informed decisions. They also help companies identify gaps, set targets, and monitor their sustainability progress. Tools and Techniques for ESG Measurement One of the most commonly used tools for ESG measurement is sustainability indices. These indices track the performance of companies based on their ESG practices and provide a benchmark for investors. They enable investors to identify companies that prioritize sustainability and align with their values. Ratings agencies also play a crucial role in ESG measurement. These agencies assess companies’ ESG performance based on predefined criteria and provide ratings or scores. These ratings help investors understand the relative performance of companies and make informed investment decisions. Disclosure frameworks are another important tool for ESG measurement. These frameworks provide guidelines for companies to disclose their ESG practices and performance. By following these frameworks, companies can ensure transparency and accountability in their sustainability reporting. Third-party certifications are also widely used for ESG measurement. These certifications validate companies’ sustainability efforts and Risk management practices are also crucial governance factors.
23 Finance Monthly. Front Cover Feature provide independent verification. They give investors confidence that companies are meeting certain ESG standards and can be trusted to deliver on their sustainability commitments. Challenges in ESG Performance Measurement While there are various tools available for ESG performance measurement, there are also challenges associated with it. One of the main challenges is data availability. Not all companies disclose their ESG data, making it difficult to obtain comprehensive and comparable information. This lack of data can hinder accurate assessment and comparison of companies’ ESG performance. Another challenge is the comparability of ESG metrics. Different companies may use different methodologies and frameworks to measure their ESG performance, making it challenging to compare their results. Standardization and harmonization efforts are ongoing to address this issue and ensure consistent measurement and reporting. Reliability is also a concern in ESG performance measurement. The accuracy and integrity of the data reported by companies can vary, raising questions about the reliability of ESG metrics. Independent verification and assurance mechanisms are being developed to enhance the credibility and trustworthiness of ESG data. Measuring the impact of ESG initiatives and quantifying nonfinancial aspects can pose additional difficulties. While financial performance can be easily quantified, the same cannot be said for the social and environmental impacts. Developing robust methodologies and metrics to measure these intangible aspects is an ongoing challenge. However, despite these challenges, there is a growing recognition of the importance of ESG performance measurement. Efforts are being made by various stakeholders, including investors, companies, and regulators, to address these challenges and improve the accuracy and transparency of ESG metrics. By overcoming these challenges, ESG performance measurement can become a powerful tool for driving sustainable development and responsible investment. The Future of ESG Metrics and Measurement As sustainability practices continue to gain prominence, the future of ESG metrics and measurement looks promising. Emerging trends and advancements in technology are expected to shape the ESG landscape. Emerging Trends in ESG Metrics Emerging trends in ESG metrics include a shift towards more comprehensive and forward-looking assessments. This includes evaluating a company’s resilience to climate change, alignment with the United Nations Sustainable Development Goals (SDGs), and impact investing. These trends reflect the evolving expectations of investors, stakeholders, and society. The Impact of Technology on ESG Measurement Technology plays a significant role in enhancing ESG measurement and reporting capabilities. The use of big data, artificial intelligence, and machine learning enables better data collection, analysis, and reporting. This technology-driven approach improves the accuracy, efficiency, and timeliness of ESG measurement, making it more accessible and actionable. Potential Developments in ESG Metrics and Measurement Looking ahead, potential developments in ESG metrics and measurement include the integration of ESG factors into financial modeling and risk analysis. This would provide a more holistic view of a company’s financial performance and resilience. Additionally, stakeholders are advocating for greater transparency, standardization, and accountability in ESG reporting, which would further strengthen the credibility and impact of ESG metrics. In conclusion, ESG metrics and measurement are essential for understanding and assessing a company’s sustainability performance. By incorporating ESG factors into investment strategies and corporate decision making, we can drive positive change and contribute to a more sustainable and responsible future. As sustainability practices continue to gain prominence, the future of ESG metrics and measurement looks promising.
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Business 26. A Pioneering Vision The Intersection of Executive Coaching and ESG Principles An Interview with Dr. Michael Nates Economic Downturns and the Impact on Mental Health The Future of Work: Could Crypto Change the Way We Get Paid? Financial Planning: Strategies for Wealth Management in Uncertain Times 32. 36. 40.
Business Finance Monthly. 26
In a rapidly evolving corporate landscape, the emphasis on Environmental, Social, and Governance (ESG) principles is no longer a choice but an imperative. As companies wrestle with integrating these principles into their operations, the importance of guidance and leadership becomes paramount. In this fascinating interview, Michael explains how, as a seasoned executive coach with a mechanical engineering background, he guides executives through their transformative ESG journeys. A PIONEERING VISION THE INTERSECTION OF EXECUTIVE COACHING AND ESG PRINCIPLES An Interview with Dr. Michael Nates Linked In: https://www.linkedin.com/in/michaelnates/ Email: michael@Multiverseconsultants.co.uk Finance Monthly. Business 27
Finance Monthly. 28 Business Michael, how has your journey in executive coaching intertwined with the increasing emphasis on ESG principles in today’s corporate landscape? My motivation for training as an executive and leadership coach came out of my recognition that organisational transformation is heavily premised on the CEO’s and leadership team’s perspectives, values and beliefs. If the head of the organisation is looking in one direction while the organisation is trying to move in another, then progress is unlikely. In my experience, the vast majority of senior leadership and board members are significantly ill-prepared and ignorant of the consequences that global warming, climate change and the resulting environmental and social changes are going to have on their businesses. For example, during a recent training session with board members, 20% of them thought that coal was a renewable resource. Coaching creates a safe space for discussion of difficult topics, including environmental, social and governance (ESG) issues. A coaching session that focuses on ESG may initially be more of a mentoring session that lays the foundation for the executive to deepen their understanding and enable more sustainable options and decisions Are ESG and sustainability one and the same concepts, as they are often used interchangeably? ESG and sustainability are two distinct concepts and should not be used synonymously. ESG has its origins in a United Nations’ Principles for Responsible Investment (PRI) publication from 2005 that used ESG as the basis for a risk management and due diligence process to assess the ESG risks faced by an organisation that could materially impact its value. Sustainability first emerged in the 1980s and addresses the impacts of an organisation on the external environmental, economic and social dimensions. Sustainability is often summarised as the triple bottom line of people, planet and profit. Counterintuitively, an organisation could meet ESG risk criteria while still being unsustainable, while the reverse is unlikely. How do you perceive the role of ESG in change management and transformation? All organisations, and I mean all, are going to be impacted by climate change and the resulting changes in economic markets and global society. Organisations that actively engage with these risks and opportunities will be better prepared to survive and thrive in the years to come. By way of an example, the younger generation Z entering the labour market are giving preference to organisations that can demonstrate their sustainability credentials. This younger cohort understand that climate change is existential and do not want to work for misaligned organisations, so the fight for talent is becoming linked to your ESG credentials. Organisations that choose to ignore ESG considerations as part of a transformation programme will face greater challenges and performance headwinds. Can you describe a pivotal moment in your coaching career where ESG principles significantly influenced the direction or outcome of a transformative process? Part of the social dimension of ESG is diversity, equity and inclusion (DEI). During a recent project initiation meeting, I noticed that the team lacked diversity. Understanding “All organisations, and I mean all, are going to be impacted by climate change and the resulting changes in economic markets and global society.”
Finance Monthly. 29 Business the importance of diversity and the benefits it brings through different viewpoints and challenges, I encouraged the client to augment the team with a broader range of ethnicities, gender identifications and neuro-diversity. The larger range of experiences and backgrounds necessitated additional team meetings and engagements, but the outcome was a much richer insight into the problem, with the resulting solutions being more widely accepted and easily adopted. What are executives’ most common challenges when integrating ESG principles into their strategic transformation agendas? Most corporate decision-making processes and decision-makers are almost totally based on financial criteria. Their decisions lack consideration of environmental and social issues. This is exacerbated by the lack of understanding (at both an organisational and individual level) of the importance of environmental and social issues in the outcome of longer-term strategy and planning. The significant obstacle is the lack of executives taking up leadership positions to move the organisations forward towards a more environmentally and socially responsible operating model. However, as noted above, most do not have a functional understanding of the issues and how they would positively benefit the organisation. So, the central challenge that needs to be addressed is the upskilling of executive decision-makers on the opportunities that ESG has to offer while simultaneously revising decision-making processes to include sustainability considerations. These two changes will fundamentally transform an organisation. Conversely, where do you see the most credible opportunities for companies to leverage ESG principles as catalysts for change and transformation? Besides changing decision-making processes to include non-financial criteria, organisations should consider three other fundamental changes. The first is to include sustainability considerations in the procurement of all goods and services. Responsible procurement will have an impact up the supply chain that will benefit organisations directly and indirectly. The second is to include sustainable culture and values in the recruitment process. This will have twin benefits of signalling to prospective candidates that sustainability is a core value, and it will enable the organisation to have the human capital necessary to meet and address the coming economic and societal changes. The third area for action is to ensure that anything that leaves your organisation be it
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