To ensure their own long-term economic and environmental well-being, major companies need to embrace a system of direction and control in which sustainability issues are integrated in a way that ensures value creation for the company and beneficial results for all stakeholders in the long term, according to a United Nations Environment Program Finance Initiative report.
Achieving this switch to so-called “integrated governance” will require a shift from a perspective focused solely on sustainability to one that that ensures value creation in the long term, according to Integrated Governance – A new model of governance for sustainability.
For over a decade, there has been a growing body of evidence from the academic and financial communities that shows the material importance of environmental, social and governance factors to corporate profitability and thus to the fair value of investments.
As a result, the argument over whether sustainability issues are financially material is fading and the focus has turned to how – rather than if – these factors should be integrated into investment processes and corporate practices. The integrated governance model shows how sustainability can be placed firmly on the boardroom agenda, according to Julie Fox Gorte, senior vice president for sustainable investing, Pax World Investment and UNEP FI Asset Management Working Group co-chair.
Increasingly, investors and other stakeholders interested in sustainability policies and performance of corporations expect to see the inclusion of sustainability in corporate governance. Yet more often than not, governance structures and operations tend to either ignore sustainability or pigeonhole it, the report says.
According to a UNEP FI briefing released last summer, institutional investors should start measuring, disclosing and reducing greenhouse gas emissions associated with their investments and portfolios to reduce policy, regulatory and financial risks associated with these emissions.
The briefing said that carbon footprinting is one of several key tools that investors should use to understand, assess and mitigate portfolio carbon risk. It also laid the foundations for the development of a new market standard to measure and report financed emissions.