Morningstar - Q4 2022 - 59

impact of their sustainability orientation on
employee productivity and retention. We found
that their robust focus there led to about $34
million of benefit in terms of increased productivity
and retention, which is about 5% of payroll.
Addressing Challenges
Hale: What are the main issues and challenges that
ESG and sustainable investing face going forward?
Krosinsky: It's going to get harder to figure out
who is a sustainable investor as firms like
BlackRock integrate considerations of ESG issues
into everything they do. Capital Group has
long said they consider corporate governance.
But are they a sustainable investor?
Another issue that's extremely important is the
need for a global low-carbon transition and
acceleration of other environmental and social
positive outcomes. Where is the money for this
transition going to come from? Do we have
country-specific road maps? I did some training
for a development bank with 26 country members.
Prime Minister Narendra Modi showed up
in Glasgow and said we know what to do in India
for our transition. Just give us a trillion dollars,
and we'll take care of it. Indonesia doesn't have
the money to get off coal, which is their
cheapest option. And we above all need to build
a global consensus to act.
Bioy: A key challenge, as always, is the data. In
emerging markets, data disclosure is far behind
developed countries. We still don't have a
common ESG disclosure framework. We also need
for the green transition a global taxonomy of
green activities. In Europe, we know how
challenging it is to develop a credible taxonomy,
one that is based on sciences. There are many
green taxonomies in the world, but they're all very
different, which can lead to greenwashing
claims. Investors investing in different countries
will be judged in different ways. I guess we all
agree that coal is a dirty energy source, but there
are other things that need to be codified globally.
Whelan: I would add a lack of understanding of
sustainability and ESG among asset managers. We
had a postdoc who interviewed a number of
A key challenge, as always, is the data ...
We still don't have a common ESG disclosure
framework.
Hortense Bioy
different financial institutions' asset managers.
She found that they were very comfortable
pushing back with companies around governance
issues, as that's something they've been doing for
a while, but on the environmental and social
issues, they just accepted what the company said.
At the corporate level, until recently, the sustainability
folks have tried to put programs in place
without the backing or understanding of the CFO in
terms of the investments needed to improve
sustainability performance. That is beginning to
change, as we see regulations make the CFO
responsible for the metrics that are being
reported and CFOs begin to understand that this is
a strategic imperative with financial outcomes.
Another problem is that investors and board
members are asking for ESG metrics and financial
metrics but not how the two are interrelated.
That means companies are making decisions with
inadequate information. One quick example:
A pulp and paper company that we talked to works
in the southeastern U.S., where water is free.
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