Adrian Sargent explains how ESG principles guide investment decisions toward environmental and social goals. The conversation covers what makes finance sustainable and how companies use these frameworks to measure impact beyond profit.
Can you explain to me what ESG is rather than just three letters and what you're going to do with it? What, what is this and why should people contact you?
ESG stands for environmental, social and governance.
What does that mean?
It's, it's the umbrella sort of three letter acronym. You could say that is there for doing the right thing for the environment. So climate change is obviously the big thing there that, that is there for the environment also making sure that you're doing the right thing by improving the environment, greenhouse gas emissions, making sure they're controlled, carbon offsetting, all those sort of key things that hear in the press these days, the social side of things that's all about doing the right thing for socially private areas, or if you take a large mining company, making sure they're looking after the environment around that particular mine site and doing the right thing there for the social impact of business. And then governance is the element where you're basically running companies that are well governed. You've got diverse boards, you've got the right structure in place to make sure that things are challenged, you've got the right number of non execs or all that stuff. So ESG really is that overarching banner of, I like to say, doing the right thing. If you think about say taking things out of the environment, mining or oil, then you need to make sure you're putting things back. So you're planting trees and you're putting things back into society. One of my beliefs is that where possible, corporates and banks should issue finance through the sustainable region. And what I mean by that is they should link the debt they're raising to improving the green elements, the environmental elements of the organization or the social elements. And they can do it via refinancing or even better for new initiatives that are there and help companies and banks and the overall economy transition to that sustainable economy. And I now one of the things, if we look to the future, one of the things I hope is that similar finance will be the norm. Therefore debt that's issued or loans that are granted, the norm will be that they're sustainable, they're green, they're social, or they're green and social, which is a sustainable element. Where you bring those two together, non sustainable finance will become the smaller party in the market and therefore it will be sustainable financing. I've got three key principles that I think about, right? I think about strategy, process and review. So you've got to think about alignment with the strategic goals of the organization. You know, so if you're looking at finance, does that align to the goals the organization? There's a number of examples where say all companies issue green finance, but that actually contradictory in its own right. You know, the market is moving from black to green. So understanding what that means and sort of, you know, I'm very happy to talk to talk to anybody about that. I'm passionate about this, so I enjoy talking about it, you know, so what is, what does it mean? How big is the market? What's the opportunity in the market? Where's the market going? So that's a strategy. So understand the strategy of the organization and also treasury, the process you need to go through then, you know, you can't just issue finance and issue any debt, you don't need it. So do you need to issue debt? Do you need to refinance some, some debt that's maturing? So identify the need. You need to then establish the criteria that you're looking to meet. So if you're looking at greening your company, then how are you going to do that? What are you going to do it with? Why is it going to be green? Making sure that it goes through that accreditation process. So there's a number of accreditation providers out there. There's a requirement there to do a sort of an RFI or a P to choose one, make sure it's aligned to your own company's goals and you get on with individuals there as well. And then there's also the what sort of debt do you want to issue? Do you want to issue medium term note? Do you want to go down the securitization route? What's the right debt for the organization and what's the market for that debt as well. And then the third thing of review is you've got to make sure that you set up the right process to continually validate that debt you've issued is still financing green social or green and social development and causes that you've set out in your prospectus. So you've got to make sure that you're doing that on a regular basis. And also you've got to make sure you get that assurance on an annual basis as well to make sure that you still maintain credibility. So overall there's a piece here where you need to maintain credibility of the debt that you've issued in alignment to the overall strategy of the organization. So as I say, there's three core principles that I think about the strategy, the process and then the continuous review.
