The issue of sustainability in economic activities has become a crucial one in legislative agendas, both at national and supranational level. It has been a path that has gone through several phases: originally it was trying to encourage companies to act in the philanthropic field beyond their core businesses, while the current model is a reality that puts at the center of its strategies the economic sustainability in the exercise of companies’own social object.
In the financial landscape, the concept of sustainability has crystallized into the acronym ESG, which includes the Environmental, Social and Governance sectors respectively. These three pillars represent a set of operational standards that companies must adhere to, in order to ensure that they achieve certain results in environmental, social and governance terms. These criteria are then scrutinized carefully by investors to guide their decisions in an informed manner.
In particular, the "Environmental" parameter reflects the way a company interacts with its environment; the parameter "Social" highlights the impact that the company has on society and the relationships it establishes with territory, people, customers, employees and the community as a whole; finally, the "Governance" parameter evaluates the quality of business management, analyzing aspects such as decision-making transparency and respect for minorities.
More recently, the concept of sustainable development has been translated into a series of investments that include five key financial instruments: Green Bonds, Sustainability Bonds, Sustainability Linked Bonds, Social Bonds and Transition Bonds. Each of these instruments aims to promote specific sustainability initiatives, ranging from reducing environmental impact to the promotion of social projects and the transition to low-carbon economic models.
But what drove the financial sphere towards this strong interest in ESG investments?
There are many reasons for this, but among them a key role is played by the sudden climate change (which makes it urgent to pay significant attention to the protection of the environment) and by the pressure exerted by legislative authorities, in particular the supranational ones, whose stringent regulations are increasingly pushing for the adoption of high sustainable standards.
Often, then, investors care about environmental issues and want to align investments with their personal values: in particular, new generations have a strong sensitivity in this regard, showing an interest for that capital to be directed in an ethical way, in a way that goes beyond mere profit. This is also because, as previously mentioned, these investments not only offer opportunities for financial gain, but also the possibility of sustaining vital causes for building a better future: therefore, investing in them means creating a positive impact on the world, an impact to be proud of.
Another aspect to consider is the crucial role of a good governance, which ensures stability and reduces the risk for the investors in the long term. Well-managed businesses tend to perform better in the long term and take less risks.
Well, the distinction between long termism and short termism emerges as a fundamental dichotomy in corporate sustainability strategies. This dichotomy reflects the focus on the temporal dimension of the entrepreneurial action and is a central theme in the current economic landscape. The search for sustainability strategies has led to the re-emergence of this opposition, which sees on the one hand the preference for long-term goals and on the other the desire for an immediate maximization of profits.
Sustainable investments are a response that prefers long-term goals over immediate gains. A 2017 analysis of 615 large US listed companies found that companies that prioritize long termism experienced significant revenue and profit growth over their competitors.
This concern for short-term results seems to be a pervasive feature of our culture, which is reflected not only in the work of individual companies but in the society as a whole. This mentality, based solely on short-term capital maximization, has led to high risk-taking, at the expense of prudent and rational resource management.
However, the time has come for a change. The financial decisions taken today must not jeopardize the opportunities and rights of current and future generations, nor must they compromise the inherent rights of natural systems and living species. The preservation and improvement of natural capital must be considered as primary objectives.
To achieve this, it is essential to invest in growth and long-term value creation, limiting the dominance of short termism and primacy shareholder. This implies a reorientation of management choices towards responsibility and sustainability, in the interest of the collective well-being and the future of ours and next generations.
Comments