Citi Perspectives Spring 2020

The focus on environmental, social and governance issues has gathered pace in recent years. The final destination is likely to be a transformation of how corporates operate. Environmental, social and governance (ESG) issues have gained increased prominence since the adoption of the United Nation’s Sustainability Development Goals in 2015. Several CEOs have committed their companies to a net-zero carbon economy by 2050, while funds managed in line with ESG principles are growing rapidly and mainstream investors are increasingly incorporating ESG criteria into their investment models. Forward-thinking companies are redefining a modern standard for corporate responsibility and adapting to changing times and evolving consumer preferences. In August 2019, 181 CEOs committed to lead their companies by targeting profit with purpose and on stakeholder value rather than shareholder value alone. And these consumer preferences can change very quickly. For example, increasingly frequent extreme weather is raising awareness of climate change and its financial risk and cost implications, while the recent media focus on plastic waste demonstrated how quickly public opinion has evolved. Similarly, more and more consumers are considering buying electric vehicles or switching to ride-sharing or subscription models. As reported widely in the media, Unilever’s CEO has challenged its business heads to justify their products on a circular basis — or risk the threat of them being discontinued — to preempt anticipated changes in consumer opinion. Automotive companies are refining their EV strategy and offering toward achieving the net-zero emissions target by 2030, consumer companies are redesigning product packaging, while in the mining sector, companies are investing to switch to more environmentally friendly extraction processes. At the same time, disruption in many business sectors is accelerating the change in attitudes. For instance, Tesla’s success in the electric vehicle (EV) market has spurred almost all mainstream auto manufacturers to develop EV products. Similarly, many fossil fuel companies are diversifying their portfolios to include renewables, wary of the potential negative implications of stranded assets and the opportunities in wind and solar power. Richa Pathak Innovation Catalyst, Citi Innovation Lab